Only two things in life are certain: death and taxes, the old adage goes. Aside from federal taxes, every U.S. state determines its own tax rates for income taxes, property taxes, and sales taxes. Because of this, each state's tax burden varies significantly. Across the board, California, Hawaii, and New Jersey have the highest taxes in the U.S.
For many people in the United States, April 15 – or tax day – is one of the most dreaded days 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 not to have state income taxes, other states 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 taxation forms, including property taxes and sales taxes.
Of the 50 U.S. states, a total of 42 and D.C. have individual income taxes. Income from wages and salaries are taxed in 41 states, while just two tax income from interest and tax dividends. Eight states do not have an income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire has a 4% income tax rate; however, it is levied on dividends and interest only. Ten U.S. states 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 follows with 1.4% to 10.75%. Maine has the highest starting tax rate for the lowest income bracket at 5.8%, but it only goes up to 7.15%. Of the states that do not use income brackets, Idaho has the highest tax rate at 5.80%. Illinois (4.95%), Utah (4.85%), North Carolina (4.75%), Kentucky (4.50%), Colorado (4.40%), Michigan (4.25%), Pennsylvania (3.07%), and Arizona (2.50%) are the other states with a flat income tax rate.
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. Five states have sales tax rates of 0.00%: Alaska, Delaware, Montana, New Hampshire, and Oregon.
California levies the highest state sales tax of any state at 7.25%. In addition to this, the average local sales tax is 1.57%, equaling a combined rate of 8.82%. However, Tennessee has the highest combined sales tax rate of 9.55% with a state sales tax of 7.00% and an average local sales tax rate of 2.55%. 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 property's current market value. Unfortunately, every state has property taxes; however, some states have very low property tax rates. There may be higher costs elsewhere in these states, such as high sales taxes, to make up for the costs.
There are thirty states with property tax rates below 1.00%. Hawaii has the lowest property tax rate among states at 0.28%; however, residents can still expect to pay high taxes due to high median home costs in Hawaii. Alabama has the second-lowest property tax rate with 0.41%, coupled with some of the country's lowest home prices. Colorado follows with the third-lowest rate at 0.51%.
On the other end, New Jersey has the highest property tax rate in the United States at 2.47%. 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 2.27%, followed by New Hampshire at 2.18%.
Effectives State Local Tax Rate
Local Tax Burden Per Capita
Taxes Paid to Own State Per Capita
Taxes Paid to Other State Per Capita