If you’ve ever wondered which states have best tax rates, you’re not alone. In today’s global economy, where people are more mobile than ever and remote work is on the rise, understanding how state taxes impact your finances is crucial for making informed decisions about where to live, work, or retire. The question of which states have best tax rates isn’t just about finding the lowest number—it’s about discovering how different tax structures can influence your quality of life, your savings, and even your business opportunities.
For many, taxes are among the largest expenses after housing and healthcare. They affect everything from your take-home pay to the cost of groceries and the value of your home. Whether you’re a young professional searching for a place to maximize your earnings, a family looking to stretch your budget, a retiree seeking a tax-friendly haven, or an entrepreneur aiming to grow your business, the differences in state tax policies can be dramatic and life-changing.
This comprehensive guide is designed to break down the complexities of state tax rates in the United States for 2025. We’ll explore not only which states have best tax rates, but also how income, sales, property, and business taxes interact to shape your total tax burden. You’ll find practical examples, actionable advice, and real-life scenarios to help you make the smartest choice for your unique situation. With tax laws and economic conditions constantly evolving, staying informed about the latest trends in state taxation is more important than ever.
It’s also important to recognize that tax rates are just one piece of the puzzle. The overall cost of living, job opportunities, public services, and even climate can all play a role in your decision to move or stay put. Some states may offer low taxes but have higher costs for housing or healthcare, while others may provide valuable public services that offset higher tax rates. For business owners, the right tax environment can mean the difference between thriving and merely surviving, as favorable tax policies can free up resources for investment and growth.
Moreover, the landscape of state taxation is far from static. States regularly adjust their tax codes in response to economic shifts, political changes, and demographic trends. For example, in recent years, several states have moved to reduce or eliminate income taxes to attract new residents and businesses, while others have increased certain taxes to fund infrastructure or education. Keeping up with these changes is essential, especially if you’re planning a major life transition such as retirement, relocation, or starting a business.
In this guide, we’ll take a deep dive into which states have best tax rates for a variety of needs—whether you’re seeking to minimize your personal tax burden, maximize your business’s profitability, or find a state that supports your long-term financial goals. We’ll also provide tips on how to evaluate tax rates in the context of your broader lifestyle and financial plans, so you can make a truly informed decision.
Let’s dive in and discover how the right state can help you keep more of your hard-earned money—no matter where you are in life. With the right information and careful planning, you can turn state tax rates from a source of stress into a strategic advantage.
Understanding State Tax Rates: What Does “Best” Mean for You?
When people search for which states have best tax rates, they’re often looking for more than just a simple ranking. The “best” tax rate depends on your unique circumstances—your income, spending habits, whether you own a home, and even your business interests. Let’s take a closer look at the main types of state taxes and how they affect you:
- Income Taxes: Taxes taken directly from your paycheck or other earnings. Some states have no income tax at all, while others have progressive or flat tax rates. For high earners or remote workers, income tax can make a huge difference in take-home pay.
- Sales Taxes: Every time you buy something, you pay a percentage in sales tax. Some states have no sales tax, while others have high rates that can add up quickly, especially on big purchases.
- Property Taxes: If you own a home or plan to buy one, property taxes can be a significant annual expense. These vary widely from state to state and even between counties and cities.
- Corporate and Business Taxes: Entrepreneurs and business owners need to consider both corporate income taxes and other business-related levies. Some states are more business-friendly than others.
- Other Taxes: Don’t forget about taxes on gasoline, vehicles, inheritance, and more. These can also impact your overall tax burden.
The bottom line: The best state for taxes is the one that aligns with your financial goals, lifestyle, and long-term plans.
Which States Have Best Tax Rates? The Top Performers Explained
Let’s dive into the states that consistently stand out for having the best tax rates, using the latest data for 2025. We’ll look at each major tax type and provide real-world examples to help you understand how these rates affect your bottom line.
States With No State Income Tax
One of the most popular ways to minimize your tax burden is to live in a state with no personal income tax. As of 2025, the following states do not levy a state income tax:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Wyoming
- Washington
- New Hampshire (only taxes interest and dividends, and this is being phased out)
Why does this matter?
Let’s say you’re a software developer earning $120,000 per year. In Texas or Florida, you’ll pay zero state income tax, keeping more of your earnings. In contrast, if you lived in California, you could pay over $10,000 per year in state income tax alone.
But remember: Some states with no income tax make up for it with higher sales or property taxes. It’s important to look at the full picture.
States With the Lowest Overall Tax Burden
When people ask which states have best tax rates, they often mean the lowest combined burden of income, sales, and property taxes. According to recent studies, these states are the top performers:
- Alaska: Consistently ranks as the state with the lowest overall tax burden. There’s no state income or sales tax, and property taxes are moderate. Residents even receive an annual dividend from the state’s oil revenue fund. However, Alaska’s cost of living can be higher, especially for goods and services.
- Wyoming: No state income tax, low sales taxes, and moderate property taxes. It’s also known for being business-friendly, making it a great choice for entrepreneurs.
- New Hampshire: No general income or sales tax, but higher property taxes. For retirees or those who rent, this can be a great option.
- Tennessee: Phased out its tax on interest and dividends, making it a true no-income-tax state. Sales taxes are higher, but property taxes are low.
- South Dakota: No income tax, moderate sales and property taxes, and a reputation for being business-friendly.
- Florida: No income tax, moderate property taxes, and a popular destination for retirees.
- Delaware: No sales tax, low property taxes, and moderate income tax rates.
- North Dakota: Very low income tax rates and moderate sales and property taxes.
- Montana: No sales tax, moderate income and property taxes.
- Idaho: Low overall tax burden, especially for property owners.
Real-World Example:
If you’re a family earning $80,000 per year, Alaska, Wyoming, and Florida will generally allow you to keep more of your money than states like California, New Jersey, or Illinois, where combined state and local taxes can be much higher.
Best States for Income Tax
For many people, income tax is the biggest concern. Here’s what you need to know:
States With No Income Tax
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax. New Hampshire is phasing out its tax on interest and dividends.
States With Low Income Tax
- North Dakota’s top rate is just 2.5%.
- Arizona now uses a flat 2.5% rate for all taxpayers.
States With Flat Income Tax
- Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, North Carolina, Pennsylvania, and Utah use a flat tax rate, meaning everyone pays the same percentage regardless of income. This can simplify tax planning and make it easier to predict your annual tax bill.
Practical Example:
If you’re a freelancer earning $60,000 per year, moving from a state with a 6% income tax to one with a 2.5% flat tax could save you over $2,000 annually.
Best States for Sales Tax
Sales tax can have a big impact on your daily expenses, especially if you make large purchases or have a big family.
States With No Sales Tax
- Delaware, Montana, New Hampshire, and Oregon do not charge any state sales tax.
- Alaska has no state sales tax, but some localities do impose their own.
States With Low Sales Tax
- Colorado (2.9%), Alabama (4%), Georgia (4%), Hawaii (4%), New York (4%), and Wyoming (4%) have among the lowest state sales tax rates. However, local sales taxes can increase the overall rate.
States With High Sales Tax
- Louisiana, Tennessee, Arkansas, and Washington have some of the highest combined state and local sales tax rates, often exceeding 9%.
Practical Example:
If you buy a $40,000 car in Delaware, you’ll pay zero in state sales tax. In Tennessee, you could pay over $3,500 in sales tax on the same car.
Best States for Property Tax
Property taxes are a major consideration for homeowners and real estate investors. Here’s how states compare:
States With the Lowest Property Taxes
- Alabama, Hawaii, Colorado, Louisiana, and Tennessee have the lowest effective property tax rates as a percentage of home value. For example, Alabama’s effective property tax rate is around 0.4%, compared to over 2% in New Jersey.
States With the Highest Property Taxes
- New Jersey, Illinois, New Hampshire, Vermont, and Connecticut have the highest property tax rates. In some areas, property taxes can exceed $10,000 per year on a median-priced home.
Practical Example:
If you own a $300,000 home in Alabama, your annual property tax bill might be around $1,200. In New Jersey, the same home could cost you over $6,000 per year in property taxes.
Best States for Retirees: Tax-Friendly Retirement
Retirees often have different priorities when it comes to taxes. The best states for retirees typically have:
- No or low tax on Social Security benefits
- Low or no state income tax
- Low property taxes
- No tax on retirement income or pensions
Top Picks for Retirees
- Florida: No state income tax, no tax on Social Security, and moderate property taxes. Florida is consistently ranked as one of the most tax-friendly states for retirees.
- Wyoming: No income tax, low sales and property taxes, and a quiet, scenic lifestyle.
- South Dakota: No income tax, low overall tax burden, and a friendly environment for retirees.
- Nevada: No income tax, low property taxes, and a mild climate.
- Delaware: No sales tax, low property taxes, and no tax on Social Security benefits.
Practical Example:
A retired couple living on Social Security and a small pension will pay far less in taxes in Florida or Wyoming than in states like California or Connecticut.
Best States for Businesses: Corporate and Business Taxes
Business owners and entrepreneurs need to look beyond personal taxes and consider the overall business tax climate. States with the best business tax environments often have:
- No or low corporate income tax
- No franchise or gross receipts tax
- Business-friendly regulations and incentives
Top States for Business Taxes
- South Dakota and Wyoming: No corporate or individual income tax, low business regulations, and a reputation for being business-friendly.
- Nevada: No corporate income tax, but there are some business-specific taxes.
- Texas: No corporate or individual income tax, but there is a gross receipts tax (the Texas Franchise Tax).
- North Carolina: The lowest corporate income tax rate in the U.S. at 2.5%.
- Florida: No personal income tax and a moderate corporate tax rate.
Practical Example:
If you’re starting a tech company, incorporating in Wyoming or South Dakota can save you thousands in annual taxes and fees compared to high-tax states like California or New York.
Other Tax Considerations: Gasoline, Inheritance, and More
Beyond income, sales, and property taxes, there are other taxes that can impact your finances:
- Gasoline Taxes: States like California and Pennsylvania have the highest gas taxes, while Alaska and Missouri have the lowest. If you drive a lot, this can add up.
- Inheritance and Estate Taxes: Some states, like Maryland and New Jersey, levy both inheritance and estate taxes. Most states have no such taxes, which can be important for estate planning.
- Vehicle Registration Fees: These can vary widely, from under $50 in some states to several hundred dollars in others.
- Sin Taxes: Taxes on alcohol, tobacco, and gambling can also vary and impact your cost of living.
How to Decide Which State Has the Best Tax Rates for You
Choosing the best state for taxes isn’t just about picking the one with the lowest rates. Here’s how to make a smart decision:
- Calculate Your Effective Tax Rate: Add up all state and local taxes you pay—income, sales, property, and others—to find your true tax burden.
- Consider Your Income and Spending: If you earn a high salary, a no-income-tax state may be best. If you spend a lot on goods, look for low sales tax. Homeowners should prioritize low property taxes.
- Factor in Cost of Living: Sometimes, states with low taxes have higher costs for housing, healthcare, or insurance. Make sure you look at the full picture.
- Think About Your Future: Are you planning to retire soon? Start a business? Buy a home? Your priorities may change over time.
- Check Local Taxes: Some cities and counties have their own taxes that can add up. Always check both state and local rates.
- Consult a Tax Professional: Especially if you have complex finances, a tax advisor can help you make the best decision for your situation
Real-Life Examples: How Tax Rates Affect Your Wallet
Scenario 1: Young Professional
Sarah is a 28-year-old software engineer earning $90,000 per year. She’s considering moving from California to Texas. By moving, she’ll save over $6,000 per year in state income taxes alone. Even with slightly higher property taxes in Texas, she comes out ahead.
Scenario 2: Retired Couple
John and Linda receive $50,000 per year in Social Security and pension income. They live in New Jersey, where property taxes are over $8,000 per year. By moving to Florida, they’ll pay no state income tax, no tax on Social Security, and cut their property taxes in half.
Scenario 3: Small Business Owner
Mike owns a small marketing agency. He’s thinking of moving his business from Illinois to Wyoming. In Wyoming, he’ll pay no corporate or personal income tax, saving thousands each year. He can reinvest those savings into growing his business.
Tips for Maximizing Your Tax Savings
- Compare states using online calculators to see your total tax burden in different locations.
- Plan major purchases in low- or no-sales-tax states.
- Take advantage of state incentives for homebuyers, business owners, or retirees.
- Monitor changes in tax laws to stay informed.
- Consult with a professional for complex situations or multi-state income.
CASE STUDIES
Case Study 1: The Young Professional
Emily, a 30-year-old marketing manager, was living in California and earning $85,000 per year. After calculating her annual state income tax bill, she realized she was paying over $4,000 just in state taxes. She decided to move to Texas, where there is no state income tax. As a result, Emily immediately increased her take-home pay and was able to save more each month, even though her property taxes were slightly higher in her new city.
Case Study 2: The Retired Couple
James and Linda retired in New Jersey, where their annual property tax on a modest home was nearly $9,000. Seeking a more tax-friendly environment, they relocated to Florida. In Florida, they paid no state income tax on their retirement income and their property tax bill dropped by more than half. This move allowed them to stretch their retirement savings further and enjoy a more comfortable lifestyle.
Case Study 3: The Small Business Owner
Carlos ran a small tech startup in Illinois, where both corporate and personal income taxes were cutting into his profits. After researching which states have best tax rates for businesses, he moved his company to Wyoming. Wyoming’s lack of corporate and personal income taxes allowed Carlos to reinvest thousands of dollars back into his business each year, accelerating his company’s growth and improving his bottom line.
Frequently Asked Questions
Are states with no income tax always the best choice?
Not always. Some states offset no income tax with higher sales or property taxes. Always consider the total tax burden.
Which state has the lowest overall tax burden?
Alaska, followed by Wyoming and New Hampshire, usually have the lowest combined state and local tax burdens.
How do tax rates affect cost of living?
Taxes are a major part of your cost of living, but not the only factor. Housing, healthcare, and transportation costs also matter.
What about local taxes?
Local taxes can be significant, especially in states with low state rates. Always check both state and local taxes before making a move.
What if I work remotely?
If you work remotely, you may be able to choose where you live based on taxes. However, some states have rules about “taxing remote workers,” so check the latest regulations.
Conclusion
When it comes to which states have best tax rates, there’s no one-size-fits-all answer. Alaska, Wyoming, Florida, Tennessee, and South Dakota consistently offer the lowest overall tax burdens, but the right choice depends on your income, spending, homeownership, and business interests. Remember, the best tax state for you is the one that aligns with your financial goals and lifestyle. Use this guide to compare your options and make the move that’s right for you. For the most current information, always check official state tax department websites and consult with a tax professional for advice tailored to your unique needs.
