Is Your State Taxing You Too Much?

by Miranda Marquit · 3 comments

state taxes
When many of us think of taxes, we usually think of federal taxes. Yet, it’s mighty important to consider that you pay taxes in your state of residence as well.

After all, the state taxes that you pay are added on top of what you pay in federal taxes. State income tax, sales tax, property tax and estate/inheritance taxes can all start to add up.

It’s easy to look up states with the highest tax burdens and those with the lowest tax burdens, so I did just that. Here’s what I found.

tax-friendly US statesHighest Tax Burdens for Residents

One of the reasons some East Coast states are so expensive has to do with taxes. It’s worth noting though, that the state with the highest tax burden, Connecticut, also has the highest per capita income in the country.

However, if you aren’t among those earning that higher income, the taxes can quickly get out of hand. In Connecticut, you will pay 5% income tax, and 6.35% sales tax, and the inheritance tax, after a $2 million exemption, can go as high as 16%. Property taxes are high, and Connecticut is one of the few states that taxes Social Security income too.

New Jersey and New York come in at numbers two and three, respectively. Their income tax rates are higher than Connecticut’s, and New Jersey has a higher sales tax rate (New York’s is lower). New York also has a rather high cigarette tax.

In Massachusetts, the highest amount of per capita debt means that it is difficult for some to pay the 5.3% flat tax, and the sales tax of 6.25%. Some expect that the tax rate will drop a little bit in come years. Maryland is actually likely to climb on the list, as the sales tax is likely to rise.

David’s Note: We can’t leave out California when we talk about high tax states now, can we? The weather is pleasant and communities vibrant, but pretty much everyone with full time work is paying 9.3% in state taxes (it’s tiered so some pay less but the rates go up as high as 13.3% for super high earners (think a million plus). Sales taxes vary by county but we pay 7.75% where we live. Property taxes is 1%, which doesn’t sound high when compared to some other states but you need to factor in the fact that property prices are extremely high. Basically, you better love California to live here!

Lowest Tax Burdens

If you want to escape taxes, you might head to Alaska. While the property tax per capita is somewhat high, the rest of the state income taxes are…non-existent. There is no income tax, no sales tax and no inheritance tax. The Tax Foundation reports that corporate taxes provide most of the revenue for the state—and that allows the citizens to be off the hook.

Tennessee is another state that doesn’t collect income tax. However, the sales tax is a rather high 7%. Additionally, interest and dividends are taxes, while capital gains are not. In Alabama and Mississippi, the income tax rate is a fairly modest 5%. However, Alabama only has a 4% sales tax, while Mississippi has a 7% sales tax. Even so, these are states with relatively low state tax burdens.

Bottom Line

If you have some flexibility in your living location, it’s possible to be a little choosy about the state you call home. If you are concerned about paying taxes, you can look for a state that has a relatively low tax burden. Of course, you should also take into account other factors. If you don’t like cold and dark for a good portion of the year, moving to Alaska for the tax advantages doesn’t make a lot of sense. Carefully consider what’s important to you, and then see if you can find a state that works for you.

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  • Ruth says:

    You forgot Illinois. Sales tax rates of nearly 10% in the cities. Property taxes rival the Northeast US. And Chicago just gifted the rest of the state with a tax and spend governor.

  • DNN says:

    The state I’m in is ok on taxing. This is a good place for education, purchasing real estate, starting a business whether it’s a traditional storefront or online, and raising children or retiring.

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