Taxation Nation: Which State Taxes Matter to You?

Whether a state has an income tax can be an important factor—especially for those in the highest tax brackets who rely primarily on ordinary income from wages and retirement accounts (as opposed to long-term investment income).

According to data from the Tax Foundation,¹ the states with the highest individual income tax collections per person for fiscal year 2023—excluding local taxes—are:

1. Oregon ($3,123)
2. Massachusetts ($3,110)
3. New York ($2,980)
4. California ($2,461)
5. Minnesota ($2,436)

However, these numbers don't tell the whole story. For example, even though Oregon has the highest individual income tax collections, it only ranks 21st for property taxes collected per person and 14th for overall tax collections per person.²

Of course, there are states that have no income taxes at all, including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Neither does the state of Washington, but it does impose a 7% tax on capital gains income from the sale of assets such as stocks, bonds, business interests, or other investments and tangible assets for high earners (see "What about capital gains?").³

That said, making a tax-friendly state your primary residence may not offer much tax benefit if you work part or full time somewhere else. Nonresidents of Colorado, for example, may be required to file a state tax return if they received income from a source in Colorado or spend even a single day working there.

Even if you're in your vacation house too long, some states might want a cut. And certain states, including California and New York, can be extremely aggressive about going after income taxes—some can go so far as to check social media to see where you've been spending time.

Depending on where you live, property taxes can account for as much as 61.5% of state and local tax collections (hello, New Hampshire),⁵ and property taxes tend to rise alongside home values. This can be of particular concern to those on a fixed income, though some states do offer reduced property taxes for seniors.

To compare states, homeowners should look at the effective property tax rate, which is total property taxes paid divided by total home value. Using 2023 data from the Tax Foundation's report,⁶ the states with the highest effective property tax rate are:

1. Illinois (1.83%)
2. New Jersey (1.77%)
3. Connecticut (1.48%)
4. Nebraska (1.43%)
5. Vermont (1.42%)

Whereas the states with the lowest effective property tax rate are:

1. Hawaii (0.32%)
2. Alabama (0.36%)
3. Arizona (0.44%)
4. South Carolina and Utah (0.47%)
5. West Virginia (0.48%)

To put those figures in perspective, a homeowner in Illinois whose property is valued at $500,000 would pay $9,150 in property taxes ($500,000 × 1.83%), whereas a homeowner in Hawaii with an identical property value would owe only $1,600 ($500,000 × 0.32%).

Since property taxes are determined by local (not state) jurisdiction, it's best to check with a specific city or county for its property tax rates.

Of all the taxes we pay, sales taxes are typically the easiest to understand. After all, they're right there on the receipt—though not in Alaska, Delaware, Montana, New Hampshire, and Oregon, which dispense with statewide sales taxes altogether. (Of these, only Alaska allows localities to charge sales taxes.)⁷

The highest per capita combined state and local sales tax rates occur in:

1. Louisiana (10.11%)
2. Tennessee (9.61%)
3. Arkansas (9.48%)
4. Washington (9.47)
5. Alabama (9.44%)

States with low or no income taxes need to generate revenue from somewhere—often turning to sales taxes. While sales tax might not be as high as an income tax, it can add up, especially on popular big purchases like boats and cars.

No state is entirely tax-free.

Even if your estate falls within the federal estate tax exemption—$13.99 million for individuals and $27.98 million for married couples in 2025 ($15 million and $30 million, respectively, for 2026)—there are 17 states plus the District of Columbia that may tax your estate, your inheritance, or both.⁸ This is especially pertinent to individuals who wish to pass the maximum amount to their heirs (as opposed to, say, charity). Of those 17, 12 states and D.C. have an estate tax:

• Connecticut (12% on estates above $13.99 million)
• D.C. (11.2% to 16% on estates above $4.87 million)
• Hawaii (10% to 20% on estates above $5.49 million)
• Illinois (0.8% to 16% on estates above $4 million)
• Maine (8% to 12% on estates above $7 million)
• Maryland (0.8% to 16% on estates above $5 million)
• Massachusetts (0.8% to 16% on estates above $2 million)
• Minnesota (13% to 16% on estates above $3 million)
• New York (3.06% to 16% on estates above $7.16 million)
• Oregon (10% to 16% on estates above $1 million)
• Rhode Island (0.8% to 16% on estates above $1.8 million)
• Vermont (16% on estates above $5 million)
• Washington (10% to 20% on estates above $2.19 million)

And five states have an inheritance tax (Maryland has both):

• Kentucky (up to16%)
• Maryland (up to 10%)
• Nebraska (up to 15%)
• New Jersey (up to 16%)
• Pennsylvania (up to 15%)

Although states vary widely in their approach to taxes, it's hard to rank them from best to worst because it largely depends on your income, whether you own property, the size of your estate, where you want to live, and the benefits a state provides in exchange for its tax revenues.

For example, while retirees may be more concerned with Social Security and estate taxes, a young couple might care more about property taxes and proximity to family. It comes down to your stage of life and which taxes matter most to you.

Indeed, it can be well worth consulting a certified public accountant or tax advisor specific to any state in which you hope to live or work. They may know rules you haven't heard of and can potentially save you money in the long run, which is the very essence of being tax savvy.