Ditching the income tax seems like a dream for many Americans, and the nine states that are proposing this solution see their fair share of appeal.
Although you may keep more of your salary at the start, the story doesn’t end there. These states often compensate for lost revenue by increasing other costs, which are escalating quickly.
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A few States without income tax have higher costs for housing, utilities or other expenses. Property taxes can be significant, especially in areas with high housing costs, and sales taxes can add up quickly on everyday purchases like groceries.
While no income tax may seem like a victory, it’s important to consider the overall financial picture before moving to a no income tax state. States without an income tax include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Realtor.com data shows that listing prices nationwide increased by an average of 46.6% between May 2019 and May 2024. Two-thirds of states without an income tax saw home prices rise skyrocketed even more over the past five years. Wyoming takes the crown with an 82% increase, followed by New Hampshire, South Dakota and Tennessee with jumps of 76.5%, 65% and 52.7%, respectively.
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Even states with slower price growth, like Texas, Washington and Florida (between 26% and 36%), could leave you feeling burdened and weakened by other costs. Home Insurance costs have skyrocketed in Texas and Florida due to the risk of property damage from climate-related events.
“Emigration from high-tax states like California, Illinois and New York to tax-free states is driving up property values due to increased demand for housing, said Miles Romney, assistant professor in the department of accounting from Florida State University’s College of Business. “But supply is relatively limited.”
How low-tax states compare
State | State Sales Tax | Effective property tax rate | Average property tax | Average annual home insurance | To note |
Alaska | 0% | 0.95% | $3,947 | $1,116 | Local sales tax can be up to 7.5% |
Florida | 6% | 0.76% | $4,476 | $10,996 | The most expensive home insurance |
Nevada | 6.85% | 0.48% | $2,660 | $1,224 | Gambling generates significant revenue |
New Hampshire | 0% | 1.25% | $7,172 | $1,225 | The state collects taxes on dividends and interest |
South Dakota | 4.5% | 1.01% | $3,408 | $2,562 | The state collects sales tax on purchases that are often exempt elsewhere |
Tennessee | 7% | 0.44% | $1,695 | $2,470 | The state collects sales tax on purchases that are often exempt elsewhere |
Texas | 6.25% | 1.2% | $4,464 | $4,456 | The oil industry provides significant revenue to the state |
Washington | 6.5% | 0.8% | $5,640 | $1,437 | The state levies 7% on capital gains above $250,000 |
Wyoming | 4% | 0.53% | $2,930 | $2,159 | State imposes sales tax on certain personal care items like feminine hygiene and diapers |
National | 4%-7% | 1.1% | $2,690 | $2,377 |
Source: realtor.com
“States without an income tax may not be as affordable as you might think for several different reasons,” said Ralph McLaughlin, senior economist at Realtor.com. “First, wealthy households might seek to establish residency in such states in order to avoid paying income taxes. This would mean that the state would have a wealthier population base, and a wealthier base tends to be correlated with higher property prices Second, states that having no income tax, they will have to make up for the loss of income through other means, which may come from a combination of taxes. higher property and sales taxes.
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This item Duty-free dream or expensive nightmare? The Truth About Living in No Income Tax States originally appeared on Benzinga.com
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