The nine no income tax states in America

Amidst the chaos of the pandemic, a trend emerged: an exodus of American workers from pricey urban hubs to more affordable corners of the country. Quality of life, more affordable housing, spaciousness all were factors that drove the move… and so were taxes.? Tax funneled families from high-tax states like California and New York to low-tax havens like Nevada, Texas and Florida.

Now, if you're eyeing those juicy tax savings, here's the scoop: there are nine states in the good ol' U.S. of A. where you can say bye to income taxes once and for all.

• Alaska

• Florida

• New Hampshire

• Nevada

• South Dakota

• Tennessee

• Texas

• Washington

• Wyoming

The higher your earnings, the more you'll save by reducing income taxes.

And if you're not currently residing in one of these tax-free havens, don’t worry! You can always plan to retire to one down the road. No income tax also translates to tax-free Social Security benefits, IRA or 401(k) withdrawals, and pension payouts. Maybe that Florida retirement plan seems sunnier now…?

State taxes have to come from somewhere

Despite the tempting prospect of avoiding state income tax, especially for high earners, remember: there's no such thing as a free lunch. States sans income tax still need funding for essential services like roads, schools, and emergency personnel. And where does that money come from? You guessed it – sales, property, and estate taxes foot the bill.

Those other taxes can pack a punch. For instance, in states without income tax, property tax rates often rank among the nation's highest. Take a peek at the map below and see how Texas and New Hampshire's property tax rates stand out.

So, before you pack your bags for a income-tax-free haven, do your homework. Understand the full set of taxes in the state you’re considering to make an informed decision.

Property taxes by state

Here's a closer look at the nine states with no state income taxes, listed alphabetically with some great state-specific resources by Kiplinger's. 

1) Alaska

Sales Tax: Alaska is among the five states that don't impose a state sales tax. However, localities within Alaska have the authority to impose sales taxes, which can climb up to 7.5%. In areas where there's no property tax, sales taxes tend to be higher. Despite this, the statewide average, as reported by the Tax Foundation, stands at just 1.76%.

Property Taxes: 1.18%, slightly above the national average of about 1.1%. 

Inheritance and Estate Taxes: None. 

For more information, see the Alaska State Tax Guide.

2) Florida

Sales Tax: The state imposes a 6% tax, with localities having the authority to add up to 2%. On average, the combined rate stands at 7.02%, as reported by the Tax Foundation. This combined rate falls in the middle range when compared to rates in other states.

• Groceries: Exempt

• Clothing: Taxable

• Motor Vehicles: Taxable (additional county tax on first $5,000 of purchase price may apply)

• Prescription Drugs: Exempt

Property Taxes: 1.06%, ranked #25 highest property tax state.

Inheritance and Estate Taxes: None.

For more information, see the Florida State Tax Guide.

3) Nevada

Sales Tax: The state imposes a 6.85% tax, with localities having the authority to add up to 1.53%. On average, the combined rate stands at 8.23%, as reported by the Tax Foundation. Therefore, it might be advisable to keep your consumption spending low. 

• Groceries: Exempt

• Clothing: Taxable

• Motor Vehicles: Taxable

• Prescription Drugs: Exempt

Property Taxes: 0.86%, ranked #30. Buying property in Nevada is relatively more affordable. 

Inheritance and Estate Taxes: None.

For more information, see the Nevada State Tax Guide.

4) New Hampshire

Sales Tax: New Hampshire doesn't tax earned income, but there's currently a 5% tax on dividends and interest exceeding $2,400 for individuals ($4,800 for joint filers). However, this tax on dividends and interest is gradually being phased out. It will be reduced to 3% in 2024, 2% in 2025, and 1% in 2026. Finally, the tax will be completely repealed on January 1, 2027.

Property Taxes: 2.15%, #3 rank. You may want to rent instead of buy. 

Inheritance and Estate Taxes: None.

For more information, see the New Hampshire State Tax Guide.

5) South Dakota

Sales Tax: The state imposes a 4.5% tax. Localities have the authority to add up to 4.5%, resulting in an average combined rate of 6.4%, according to the Tax Foundation. This combined rate falls below the average.

• Groceries: Taxable

• Clothing: Taxable

• Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4% excise tax

• Prescription Drugs: Exempt

Property Taxes: 1.32%, #16 rank. 

Inheritance and Estate Taxes: None.

For more information, see the South Dakota State Tax Guide.

6) Tennessee

Sales Tax: The state imposes a 7% tax. Additionally, there's a state tax of 2.75% on single item sales ranging from $1,600 to $3,200. Localities can add up to 2.75%, resulting in an average combined state and local rate of 9.55%, according to the Tax Foundation. This is the second-highest combined rate in the nation. However, local taxes are capped: only the first $1,600 of any single item is taxable.

• Groceries: Taxable (4% state rate; additional local taxes may apply)

• Clothing: Taxable

• Motor Vehicles: Taxable (7% basic rate, plus 2.75% state tax on sales price between $1,600 and $3,200; additional local taxes may also apply)

• Prescription Drugs: Exempt

Property Taxes: 0.75%, #38. The median home price in Nashville is only about $452,000. 

Inheritance and Estate Taxes: None.

For more information, see the Tennessee State Tax Guide.

7) Texas

Sales Tax: The state imposes a 6.25% tax. Localities can add up to 2%, resulting in an average combined rate of 8.2%, according to the Tax Foundation.

• Groceries: Exempt

• Clothing: Taxable

• Motor Vehicles: Taxable

• Prescription Drugs: Exempt

Property Taxes: 1.9%, #6 rank. Property tax is among the highest in the nation. You may want to rent instead.

Inheritance and Estate Taxes: None.

For more information, see the Texas State Tax Guide.

8) Washington

State Income Taxes: None. However, the state has imposed a 7% tax on the sale or exchange of certain long-term capital assets if the annual profits exceed $250,000. 

Sales Tax: The state imposes a 6.5% tax, and municipalities can add up to 4.1% to that. This results in an average combined rate of 8.86%, according to the Tax Foundation. Washington's combined rate ranks as the sixth-highest in the nation.

• Groceries: Exempt

• Clothing: Taxable

• Motor Vehicles: Taxable (6.5% ordinary rate, plus additional 0.3% tax)

• Prescription Drugs: Exempt

Property Taxes: 1.09%, #23 rank. The median home price in Seattle is about $799,000, one of the highest in the nation. 

Inheritance and Estate Taxes: Washington imposes an estate tax on estates valued over $2.193 million, with tax rates ranging from 10% to 20%. The exemption threshold is adjusted annually for inflation. Additionally, the state provides a $2.5 million deduction for family-owned businesses valued at $6 million or less.

For more information, see the Washington State Tax Guide.

9) Wyoming

Sales Tax: A 4% state tax applies, with municipalities having the option to add up to 2%, resulting in a combined rate of 5.36%, as per the Tax Foundation. This combined rate ranks as the seventh-lowest in the United States.

• Groceries: Exempt

• Clothing: Taxable

• Motor Vehicles: Taxable

• Prescription Drugs: Exempt

Property Taxes: 0.61%, #44 rank. The median home price in Cheyenne is only $354,000 according to Zillow. However, the median home price in Jackson Hole, where a lot of rich folks relocate to for tax purposes is a whopping $2.6 million. 

Inheritance and Estate Taxes: None.

For more information, see the Wyoming State Tax Guide.

The best cities in the no income tax states

Ranking the cities in the nine no-income-tax states may be subjective, but let's give it a shot anyway with some logic. 

Below is a chart that depicts how much a household needs to earn to afford the typical home in their local market, based on data from Zillow. The price of a median home in each city is greatly influenced by the job opportunities and incomes available. Typically, cities with more job opportunities and higher median household incomes tend to have higher median home prices, and vice versa.

To identify our top contenders, we need to cross-reference the cities with the highest income requirements with the nine no-income-tax states. They are:

1. Seattle, WA ($213,984)

2. Miami, FL ($151,163)

3. Austin, TX ($149,267)

4. Nashville, TN ($128,535)

5. Orlando, FL ($121,418)

6. Dallas, TX ($121,398)

7. Las Vegas, NV ($119,529)

8. Tampa, FL ($116,329)

9. Jacksonville, FL ($109,271)

We wrap up our exploration in Jacksonville because any other city in the nine no-income-tax states falls short of the United States median income of $106,536. We're on the hunt for cities bursting with income opportunities!

Seattle takes the crown as the ultimate city without state income taxes. Why? Well, it's got the big guns—Amazon, Microsoft, Starbucks, Deloitte, Providence Health, and a bunch more heavy hitters. The weather may be drearier than most (it drizzles for half the year).. 

Austin has been riding the pandemic wave like a pro surfer, pulling in folks from pricey cities like San Francisco and Los Angeles. Plus, it's got the golden touch, attracting titans like Tesla and Oracle to relocate their headquarters. Meanwhile, Miami has been attracting tech talent and venture capitalists to its warmer climate. 

So, if you're eyeing a move for the cash and career boost, Seattle, Miami, and Austin are your best bets without those pesky state income taxes. And if Austin's on your radar, enjoy cheaper rents and house prices thanks to a wave of new supply shaking up the market.

Don't let taxes wag the income dog

Sure, skipping out on state income taxes sounds like a dream, but these nine states have their own tricks up their sleeves. And hey, if you stumble upon a killer job opportunity in a high-tax state, don't let the taxman scare you off. Oftentimes, the career experience may well be worth the extra tax bite.

And don’t forget,you can always consider moving to a tax haven in future chapters of life. If you've got stock options or investment deals,it could be worth it to time a relocation. 

That all said, there’s a balance to the role of taxes in your life.. Time is the one thing we don’t get more of: community and the quality of life are two of the important drivers of happiness. And if a tax decision aligns with that, maybe it’s the final puzzle piece to decide on a move. 

Here at Plenty, we can help you achieve your money resolutions today. Plenty is an an investment platform designed specifically for couples to build wealth, together. Plenty goes beyond budgeting, making it simple to invest, save and grow towards your future goals by unlocking access to the financial strategies of the wealthy. Ready to get started? Sign up for your free trial today.

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Plenty is a wealth management platform designed specifically for couples. We go beyond budgeting, making it simple to invest, save, and grow toward your future goals by unlocking access to the financial strategies of the wealthy. Ready to get started? Sign up for free today.

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