Only two things in life are certain: death and taxes, the old adage goes. Americans are most familiar with three types of taxes: income tax, sales tax, and property tax.
For many people in the United States, April 15 – or tax day – is one of the most dreaded says of the year. In addition to paying federal taxes, many people around the nation also have to pay state income taxes.
While some states including Florida and New Hampshire are fortunate enough to not have state income taxes, there are other states that have a high state income tax rate. However, don’t think that the states without income taxes get off that easy – revenue is raised for the state through other forms of taxation, including property taxes and sales taxes.
Of the 50 U.S. states, a total of 43 have individual income taxes. Income from wages and salaries are taxes in 41 of the states, while just two tax income from interest and tax dividends. Seven states do not have an income tax.
Just nine of the states in the U.S. use a single-rate tax structure. This means that everyone pays one rate, regardless of the amount of taxable income. Thirty-two states use graduated-rate income brackets, wherein rates are set based on the amount of taxable income and other factors including marital status at the time of filing.
Of all the states, California has the highest individual income tax rates. Rates range from 1% to 13.30% based on income. Hawaii also has a high individual income tax rate, ranging from 1.4% to 11% and spread across 12 different income brackets
New Jersey doesn’t fall far behind Hawaii with rates starting at 5.35% and ranging to 9.85%. Iowa’s tax rate for anyone making at least $73,710 is fairly high at 8.53%. The minimum tax rate in this state is just 0.33%.
In the states that do not use income brackets, North Carolina has the highest tax rate. This state has a single-rate tax structure of 5.25%, surpassing other states including New Hampshire (5%), Massachusetts (5.05%), and Kentucky (5%).
A sales tax is a consumption tax imposed by the government on the sales of certain goods and services. A conventional sales tax is levied at the point of sales and collected by the retailer, who then passes it on to the government. A use tax is a sales tax on purchases made outside of one’s state of residence for taxable items that will be used, stored, or consumed in one’s state of residence.
State sales taxes range from 0.00% to 7.25%, with most states falling between 4% and 7%. In addition to state sales tax, some local jurisdictions also impose a local sales tax.
California levies the highest state sales tax of any state of 7.25%. In addition to this, the average local sales tax is 1.31%, equaling a combined rate of 8.56%. Tennessee has the second-highest state sales tax rate of 7.00% and has an average local sales tax rate of 2.47%, resulting in a combined rate of 9.47%. Rhode Island, Mississippi, and Indiana also have a state sales tax rate of 7.00%.
In addition to income tax and sales tax, United States residents also pay property taxes. Property tax is a real estate ad-valorem tax levied by the jurisdiction in which the property is located and paid for by the property owner. Property taxes are recalculated annually and determined by multiplying the property tax rate by the current market value of the property.
Unfortunately, every state has property taxes; however, some states have very low property tax rates. In these states, there may be higher costs elsewhere, such as high sales taxes, in order to make up for the costs.
There are 26 states with property tax rates below 1.00%. Hawaii has the lowest property tax rate among states of 0.27%; however, due to high median home costs in Hawaii, residents can still expect to pay high taxes. Alabama has the second-lowest property tax rate with 0.42%, coupled with some of the lowest home prices in the country. Louisiana follows with the third-lowest rate at 0.52%.
On the other end, New Jersey has the highest property tax rate in the United States at 2.44%. One reason for this is that New Jersey’s county and municipal governments cannot impose local income or sales tax, so property taxes pay for almost everything in New Jersey. Illinois has the second-highest property tax rate in the U.S. at 2.31% followed by New Hampshire at 2.20%.