The Seven States that do not Impose Income Tax

As of 2018, seven out of the 50 states of the USA do not impose an income tax. These states are Wyoming, South Dakota, Alaska, Texas, Nevada, Washington, and Florida. On the other hand, Tennessee and New Hampshire are famous for having an extraordinarily low tax rate.

However, state income tax is not a factor for residents in these seven states. Despite how good getting a tax break might sound, these states often have trade-offs in form of high costs of living. For instance, residents pay more for gas and groceries. In turn, these high costs often tend to level the field with other states that do impose state income taxes. Notably, resident in these seven states do not have to take the extra time to file a second tax form. Nonetheless, they may be paying in other ways.

It would be prudent to scrutinize the existing tax regime before you consider moving to one of these states. Below is more information about taxation in these states that may prove helpful.

Wyoming

Wyoming has the lowest tax rates among the seven states. Much like the rest of the seven states, Wyoming State boasts no personal state income tax. However, as an added bonus, residents in Wyoming are not subject to corporate state income taxes either. Furthermore, the state does not tax retirement income.  As of December 2018, Wyoming had an average effective property tax rate of only 0.6% while its average sales tax rate sits at 5.5%. It is imperative to note that the state has high taxes on businesses that produce natural resources like coal and others. This state presents a very nice spot to retire given the absence of personal income and retirement taxes.

South Dakota

Unlike its northern counterpart, South Dakota does not impose tax state income on it residents. Fortunately, it makes up for it in other creative and legal ways. For instance, South Dakota’s Department of Revenue Special Tax Division imposes excise taxes on things like cigarettes, alcohol beverages. Further, there are excise taxes for banks and even a fee on coin Laundromats. South Dakota remains a very retirement-friendly state regardless of several attempts to reinstate the state income tax that was repealed in 1943. Most notably, the state boasts one of the lowest sales taxes in the entire country. The state also claims a relatively low property tax that keeps the living costs fairly low.

Alaska

Alaska is state income tax-free since repealing it in 1980. As an added benefit, the state imposes no sales tax either. To top things off, the Alaska Permanent Fund Corp gives additional cash to every Alaskan resident each year. The state government makes money by levying other taxes like high estate, severance, excise, and gift taxes.

In the recent past, legislators have been in the Last Frontier have suggested bringing back state income tax. The legislators are quoting the increase of revenue from oil drilling and gas production. Besides, it as though Alaskan residents are safe from the statewide tax as of now.

Texas

According to the old Texas Constitution, personal state income taxes are permanently forbidden. Instead of hiking up revenue through income taxes, Texas has found other ways to make money. However, the state has hefty sales and use taxes to the tune of around 8.25% in some areas. In addition, Texas is among the states with the highest property taxes in the country. Therefore, residents still get a formidable sum taken out other ways despite the break from personal state income taxes. Apparently, sales taxes in different jurisdictions pay a larger portion of the government bills.

Nevada

Nevada is state income tax-free, perhaps due to the flouring gambling activities. Yes, you read right! Gambling is the major sources of fund to the Nevada’s state government. The state government earns around a billion dollars a year. In addition, the sales tax from tourism also sums up to the government funds. Nevada has hefty sales tax of around 6.85%, which is a principle way for the state to get around the no-state-income-tax break.

Washington

Despite the lack of state income taxes, Washington holds the fifth place among the states with the highest sales taxes. Washington residents voted to kick out state income tax, even for the wealthiest top percent. Notably, the state’s sales tax rate comes in at around 6.5%. Additionally, local sales taxes come at an average of around 9%. This is quite the trade-off.

Florida

From 1855, the residents of the Sunshine State residents are not subject to state income taxes. However, similar to many states on this list, Florida imposes heavy sales taxes over its citizens. As of December 2018, the residents paid sales taxes to the tune of about 6%. Additionally, Florida has one of the highest property tax rates around 1%. On the other hand, Florida remains an enormously popular retirement spot.