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When it comes to moving to a new state to reduce state tax liability, the nine states without their own individual income taxes often draw the most attention.
However, states without local income taxes often compensate with a higher state sales tax, and can also sometimes have higher average property taxes.
A new report out from WalletHub on Tuesday breaks down the average overall state tax burden in each of the 50 states, showing where residents can expect to spend the smallest share of their income on taxes.
In the contiguous United States, New Hampshire is the state with the lowest overall state tax burden, according to the report. Residents of the Granite State, which has no state tax on wages and salaries and the lowest sales tax burden in the country, can expect to spend 5.63% of their income meeting state tax obligations, primarily property taxes.
“Property taxes in New Hampshire are among the highest in the U.S., but income tax and sales tax are among the lowest, bringing the total tax burden below nearby Massachusetts, and below all states in the U.S. except Alaska,” says Hannah Jones, senior economic research analyst for Realtor.com®.
Home affordability is also a draw for people considering a move to New Hampshire, adds Jones.
“For example, Manchester-Nashua, NH, has garnered significant attention as home shoppers seek out lower-priced homes within commuting distance from high-priced Boston,” she says.
The Manchester-Nashua metro area has also claimed the top spot as the country’s hottest property market for a sixth time in the past year, according to a recent Realtor.com report.
Six other states without income taxes also made the list of 10 states with the lowest overall tax burden: Alaska (ranked No. 50 for tax burden, with the lowest in the nation), Wyoming (No. 48), Florida (No. 47), Tennessee (No. 46), South Dakota (No. 44), and Nevada (No. 41).
But the list also includes a few surprises.
Delaware, which has the seventh-highest income tax burden in the country, was near the bottom for overall tax burden, at No. 45, thanks to its relatively low sales and property taxes.
Texas, which has no state income tax, ranked a middling No. 37, with an average state tax burden of 7.56%. Washington, the final state with no individual income tax, did even worse, coming in at No. 29 with a tax burden of 8.04%.
New York once again ranked No. 1 in the nation for state taxes, with an average burden of 12.02%. The Empire State was followed by Hawaii (11.8%), Vermont (11.12%), Maine (10.74%), and California (10.4%).
“New York and Hawaii are among the most expensive states in the U.S. in terms of home prices, and also carry the highest total tax burden. High taxes and high housing costs contribute to the high cost of living in these states,” notes Jones.
Other Northeastern states in the top 10 for taxes included Connecticut (No.6), New Jersey (No. 9), and Rhode Island (No. 10). From the Midwest, Minnesota and Illinois also made appearances, ranked Nos. 7 and 8 respectively.
“The seven states with the highest property tax burden are all in the Northeast,” says Jones. “As more companies adopted hybrid work arrangements, the popularity of affordable metros near large Northeast business hubs surged as buyers tried to balance their housing preferences and work arrangements.”
The report shows that stereotypes about Red states and Blue states generally hold true, with Republican-leaning states having a lower tax burden on average. As defined by their vote in the last presidential election, Red states had an average tax burden rank of 30.84, lower on the list than the average Blue state rank of 20.08, according to WalletHub.
The new report does not list tax rates, which can vary by income bracket, but rather average tax burdens. That means the report lists the share of their income the average person can expect to spend meeting the state tax liabilities.
“Generally, lower tax burdens are seen to encourage economic growth. But economic growth can be tied to a lot of other factors,” said Blaine G. Saito, an assistant professor of law at the Ohio State University, in a statement.
“For example, New York and California are famously seen as high-tax jurisdictions. But they have relatively strong growth because of other factors,” he added. “Perhaps the success stories of lower taxes attracting growth are Texas and Florida. But there, too, other factors come into play.”
Saito noted that tourism is a major economic engine in Florida, where tourists can be taxed through sales taxes.
“Texas has wooed California companies, not only with lower taxes but also with easier regulations and reduced costs, because housing, for example, is much cheaper in Texas cities,” he continued.
According to data from the latest Realtor.com affordability report, Texas has an affordability score of 0.63 for February, while California scored 0.44. A lower score reflects a less affordable housing market. The national score for February was 0.66.
Keith Griffith is a journalist at Realtor.com. He covers the housing market and real estate trends.
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