Alaska carries the lowest overall state and local tax burden in the country, with residents paying about 5% of personal income toward state and local taxes combined. But naming a single winner hides the point: the states with the least taxes for a high-earning wage worker, a retiree on Social Security, a homeowner, and a business owner are not the same states. A place with no income tax often makes up the difference in property or sales taxes, and a place with rock-bottom property taxes may claw it back somewhere else. The useful question is which mix of taxes matters most for your money.
Which States Have the Lowest Overall Tax Burden
Adding every tax together and expressing the total as a share of residents’ personal income is the only honest comparison. By that measure, Alaska sits at roughly 5%, held down by no income tax, no statewide sales tax, and oil revenue that subsidizes the state budget. New Hampshire, Tennessee, Florida, and Delaware round out the bottom five, all falling below about 6.5%.
Hawaii sits at the opposite end at nearly 14%, driven by high sales and excise taxes even though its property tax rate is the lowest in the nation. That contrast is the whole lesson. Fixating on one tax category will mislead you. Texas and New Hampshire, both famous for skipping income tax, land in the middle of the overall rankings because their property taxes do heavy lifting on the revenue side.
States With No Individual Income Tax
Nine states do not tax wages and ordinary income. Eight impose no individual income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. New Hampshire joined this group after fully repealing its interest and dividends tax for tax years beginning after December 31, 2024.1New Hampshire Department of Revenue Administration. Technical Information Release TIR 2025-001 Washington is the ninth: it doesn’t tax wages, but it does tax investment gains above certain thresholds.
These states fund themselves differently. Alaska leans on oil severance taxes. Florida and Nevada draw on tourism-driven sales and hospitality revenue. Texas and New Hampshire lean harder on property taxes. Wyoming and South Dakota keep budgets small relative to population. The tradeoff exists somewhere in every case. The question is whether it lands on a tax you’ll actually pay.
A high-income W-2 earner saves the most in a no-income-tax state, because wages are the largest thing being sheltered. A renter who doesn’t own property and doesn’t spend heavily on taxable goods captures nearly the full benefit.
States With No Statewide Sales Tax
Five states charge no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. At the register, you pay the listed price with no percentage added. The savings show up most on big purchases. Buying a $30,000 vehicle in Oregon instead of a state with a 7% sales tax keeps roughly $2,100 in your pocket.
Alaska is the exception within the exception. The state charges no sales tax, but boroughs and cities can impose their own local sales taxes ranging from 1% to 7%.2Department of Commerce, Community, and Economic Development. Alaska Tax Facts Whether you pay any sales tax in Alaska depends on the municipality. Montana allows limited local resort taxes in certain tourist areas.
Excise taxes on gasoline, tobacco, and alcohol still apply everywhere. State gas excise taxes alone range from under 9 cents per gallon in Alaska to over 60 cents in the highest-taxing states.3Tax Policy Center. How Do State and Local Motor Fuel Taxes Work These narrow taxes fund specific programs like road maintenance and exist regardless of general sales tax policy.
States With the Lowest Property Taxes
Hawaii and Alabama have the lowest effective property tax rates on owner-occupied homes: 0.29% and 0.37% respectively.4Tax Foundation. Property Taxes by State and County, 2026 On a $400,000 home, that comes to roughly $1,160 in Hawaii and $1,480 in Alabama. In states where the effective rate crosses 2%, the annual bill on the same home runs several thousand dollars higher.
Effective rate is what homeowners actually pay as a share of market value. Raw millage rates mislead because states assess property at very different percentages of market value. Alabama assesses owner-occupied homes at only 10% of market value under its classification system, which is why its effective rate stays low even when its millage numbers don’t look small.
Homestead Exemptions
Most states reduce the taxable value of your primary residence through a homestead exemption. A $50,000 exemption on a $400,000 home means you’re taxed on $350,000. Some states cap the exemption at $10,000 to $25,000. A few, including Florida and Texas, place no dollar limit on it. When comparing states, the effective rate after exemptions is what determines your bill.
Senior and Disability Relief
Many states add property tax relief for residents over 65 or those with permanent disabilities. These programs freeze assessed value, cap annual tax increases, or provide outright exemptions up to 100% for qualifying low-income seniors. Income and net worth thresholds vary. These benefits often require an annual application and won’t apply retroactively if you miss the deadline, so check the county rules where you live.
Best States for Retirement Income Taxes
If you’re picking a state to retire in, the income tax rate alone tells you very little. What matters is whether the state taxes the income retirees actually live on: Social Security, pensions, and 401(k) or IRA distributions.
States That Fully Exempt Retirement Distributions
Beyond the eight states with no income tax, four states with income tax systems fully exempt common retirement income like pensions, 401(k) distributions, and IRA withdrawals: Illinois, Iowa, Mississippi, and Pennsylvania. That gives retirees thirteen states where these distributions face zero state tax. Washington belongs on this list in practice, since it doesn’t tax ordinary income.
States That Tax Social Security
Most states leave Social Security alone. Eight still tax some portion of benefits in 2026: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. West Virginia phased out its Social Security tax and no longer imposes it. Each of the eight applies its own thresholds and exemptions, so a retiree with modest income may owe nothing even in a state that technically taxes benefits. Colorado, for example, allows residents 65 and older to fully deduct Social Security from state taxable income.
For retirement purposes, a state with a 5% income tax that exempts all retirement income costs less than a state with a 3% rate that taxes everything. Look at what gets taxed, not the headline rate.
Estate and Inheritance Taxes
Most states impose neither an estate tax nor an inheritance tax. The ones that do can take a meaningful bite at death, which matters for anyone with significant assets choosing where to settle long-term.
Thirteen states and the District of Columbia impose their own estate tax, separate from the federal one. Exemption thresholds in 2026 range from $1 million in Oregon to $13.61 million in Connecticut. Massachusetts and Oregon have the lowest thresholds, so estates of moderate size can trigger a state bill even when they fall well below the federal exemption.5Tax Foundation. Estate and Inheritance Taxes by State, 2025 The states with estate taxes are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington, plus the District of Columbia.
Six states impose an inheritance tax, paid by the person receiving assets rather than the estate: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state with both. Inheritance tax rates depend on the heir’s relationship to the deceased. Spouses and direct descendants usually pay nothing or very little, while distant relatives and unrelated beneficiaries can face rates up to 15% or 16%.5Tax Foundation. Estate and Inheritance Taxes by State, 2025
If estate planning matters, the simplest path is living in a state that imposes neither tax. Every no-income-tax state except Washington fits.
Business Tax Traps in “No Income Tax” States
If you run a business, individual tax savings can vanish through other channels. Some states drop the corporate income tax label and collect similar revenue under a different name.
South Dakota and Wyoming are the only states that impose neither a corporate income tax nor a gross receipts tax.6Tax Foundation. State Corporate Income Tax Rates and Brackets, 2026 Nevada, Ohio, Texas, and Washington skip the corporate income tax but impose gross receipts taxes, which tax total revenue rather than profit. A business with thin margins can owe significant gross receipts tax in a year it barely breaks even.
Texas is a common trap. Its franchise tax applies to all entities doing business in the state, and entities below $2,650,000 in total revenue owe no tax but must still file an annual report by May 15 to maintain good standing.7Texas Comptroller of Public Accounts. Franchise Tax Missing the filing brings penalties even when no tax is due, which catches new owners who assume “no corporate income tax” means no filing obligations.
Moving to a Low-Tax State Without Getting Taxed Twice
Relocating to a no-income-tax state doesn’t automatically release you from your former state’s tax collector. Most states treat residency as a factual determination, and a botched move can leave you paying taxes in both places.
Establishing a new tax home takes two things: physical presence in the new state and a genuine intention to stay. Many states use a 183-day threshold for statutory residency, so spending more than half the year in a state lets that state claim you regardless of what you say. Day-counting alone won’t settle it. States that audit departing high-income residents look at where you spend your time, the nature and location of your homes, your business connections, your family ties, and where your valued possessions live.
Paper changes matter less than real patterns. A new driver’s license and voter registration in Florida won’t protect you if your children still attend school in New York and you spend holidays there. Stronger moves involve surrendering any homestead property tax exemption in the old state, transferring medical providers, and physically moving belongings you care about. States pay attention to where you spend meaningful days, not just random Tuesdays.
The lowest-tax state for your household depends on your spending, your income sources, and what you own. A high-income W-2 earner saves most in a no-income-tax state. A retiree on Social Security and modest 401(k) withdrawals should weigh property tax rates and retirement income exemptions. A business owner has to price in franchise taxes and gross receipts levies. Run the numbers for your actual financial profile, because the answer changes with the person asking.