Choosing to reside in a state with low tax rates can be an effective way to reduce your cost of living, often by a double digit percentage. State taxes come in a variety of forms, including income, sales, real estate, and personal property taxes. All states charge at least one of these taxes, and most charge all four to varying degrees. Your lifestyle will often dictate which type of tax is most critical for consideration when evaluating where to live. In this article, I’m going to present four states that offer different tax benefits for residents.
Alaska has the lowest overall tax burden per resident of any state in the Union. Alaska is one of only two states that has neither a state income tax nor a state sales tax. Local municipalities in Alaska are allowed to levy their own local sales taxes, which can be as high as 7.5 percent, although many towns do not levy a sales tax. Alaskan property taxes are on par with the national average. Because of oil revenues to the state, Alaska is the only state that actually pays residents for living there. Alaska Permanent Fund Dividends vary each year, and were $878 per eligible resident in 2012.
New Hampshire is the other state with no state sales tax and no state tax on ordinary income. The state does levy a tax on dividends and capital gains, so individuals who earn a large portion of their income from these sources should take this into consideration. Local municipalities in New Hampshire do not have sales tax, but New Hampshire’s state and local property taxes are the highest in the United States. Therefore, New Hampshire can be a zero tax state if you are a wage earner and do not own property.
While South Dakota does levy a 4 percent state sales tax, and local municipalities may also levy sales taxes, South Dakota has the second lowest overall tax burden for residents of any state. This is primarily because of the lack of a state income tax, and some of the lowest personal property taxes in the country. However, while real property tax rates exceed New York state’s, low property values statewide keep the actual property tax bills low. South Dakota is one of the most popular residency states for full time RVers that don’t own real estate, and is growing in popularity as a “tax home” for Americans living abroad for extended periods of time.
Like most low-tax states, Nevada lacks a personal income tax. The state’s 6.85 percent state sales tax, with up to an additional 1.25 percent tacked on in some municipal areas, makes Nevada less attractive in comparison to other low-tax states. Nevada is unique among all states in that it charges property taxes on only 35 percent of the assessed value of property. Of particular interest to retirees, Nevada will rebate up to 90 percent of property taxes paid by those over age 62 who meet certain income criteria, making Nevada particularly attractive to retirees who engage in limited shopping.
While there is no one perfect state in regards to taxation, some states are definitely more attractive than others. Factors such as whether you will own a home or not, and how you earn your income, are important factors in determining whether one state or another is better for your situation.