NCPA - National Center for Policy Analysis

Not All Income Tax-Free States Are Alike

December 16, 2014

Nine states -- Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Wyoming, Washington and Tennessee -- lack a general state income tax, but the taxing similarities between them stop there. A new report from NCPA Senior Fellow Pam Villarreal details how sales and property tax rates vary among the no-income-tax states and how some may be better off by moving from one state to another.

When a state lacks an income tax, it tends to make up that lost revenue in two major ways: sales taxes and property taxes. Alaska and New Hampshire do not have a sales tax, but South Dakota and Wyoming impose 4 percent tax rates while Florida's rate is 6 percent, Texas' rate is 6.25 percent, Washington is 6.5 percent, Nevada's rate is 6.85 percent and Tennessee\'s rate is 7 percent. Property tax rates also vary wildly among the no-income-tax states, ranging from a median 0.58 percent rate in Wyoming to 1.81 percent in Texas.

Using the NCPA's State Tax Calculator, Villarreal compared consumers in the no-income-tax states. For example:

  • While Texas and Florida have almost the same state/local sales tax rate, Texas' property tax rate is almost twice that of Florida. As such, a 40-year-old Florida couple earning $150,000 annually and owning a $200,000 home would lose $181,000 over a lifetime by moving to Texas.
  • Similarly, New Hampshire's property tax rate (1.86 percent) is much higher than Alaska's (1.04 percent). A 30-year-old individual earning $75,000 annually moving to Alaska from New Hampshire would gain $14,418 over a lifetime if he is a $1,200 per month renter and would gain $125,226 over his lifetime if he is a $150,000 homeowner.
  • Nevada and Florida have very similar property tax rates, but Nevada's state/local sales tax rate is 7.94 percent, compared to 6.63 percent in Florida. A 40-year-old Florida couple earning $150,000 annually and owning a $200,000 home would lose $19,438 over a lifetime by moving from Florida to Nevada.

Anyone can use the NCPA's State Tax Calculator to see how their state's tax system stacks up against its neighbors, calculating a person's lifetime gains -- or losses -- from moving to another state.

Source: Pam Villarreal, "Not All Income Tax-Free States Are Alike," National Center for Policy Analysis, December 16, 2014. 


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