States With the Highest (and Lowest) Taxes

Print Email

States With The Lowest Taxes

10. Alabama
> Taxes paid by residents as pct. of income: 8.3%
> Total state taxes collected: $9.0 billion (25th highest)
> Tax burden per capita: $2,886 (5th smallest)
> Income per capita: $34,763 (7th lowest)

Unlike the majority of states with the lowest tax burdens, Alabama levies a heavy excise tax on spirits, collecting more than $18 per gallon in 2014. On the other hand, the state currently taxes cigarettes at just 43 cents per pack, less than half of what tobacco is taxed on average by states across the nation. Alabama’s low state and local tax burden was due primarily to an exceptionally low effective property tax rate, which was just 0.41% of a home value in 2012. An Alabama resident paid just $540, on average, in property taxes in 2011, the lowest amount in the nation. The state’s wealthiest residents currently pay a 5% individual income tax, among the lower rates nationwide. However, the average combined state and local sales tax rate is among the nation’s highest, at 8.51%. Because the poor pay a large share of taxes in the state, Alabama’s tax system has been considered to be among the nation’s most regressive.

ALSO READ: Cities With Highest (and Lowest) Taxes

9. South Carolina
> Taxes paid by residents as pct. of income: 8.3%
> Total state taxes collected: $8.0 billion (21st lowest)
> Tax burden per capita: $2,784 (3rd smallest)
> Income per capita: $33,603 (5th lowest)

South Carolina residents paid the seventh-lowest effective property tax rate in 2012, and currently pay the third-lowest gasoline tax in the country. South Carolina’s tax burden has declined slightly in recent years, from 8.7% in 2009 to 8.3% in 2011. However, unlike other low tax states, South Carolina still levies a state income tax, and all residents earning over $14,400 must pay the state’s top tax rate of 7%. Still, residents paid an average of just $2,784 per capita in state and local taxes, of which just $1,868 was paid to the state and other localities within their home state. These were both among the lowest tax payments, in dollar terms, in the nation.

8. Nevada
> Taxes paid by residents as pct. of income: 8.1%
> Total state taxes collected: $6.8 billion (16th lowest)
> Tax burden per capita: $3,221 (15th smallest)
> Income per capita: $39,947 (23rd lowest)

Much of Nevada’s tax revenue comes from tourists, and the state’s gaming industry remains a major employer. While the state’s sales and gasoline taxes are quite high, the state is also one of the few to not charge a personal income tax on its residents — rich or poor. As a result of its tax structure, state residents paid less than 5% of their income in taxes to Nevada and its localities, the fifth-smallest outlay in the country. Nevada also levies comparably low tax rates on spirits and tobacco — drinking alcohol and smoking are activities often associated with gambling. The state’s excise tax on cigarettes is only 80 cents per pack, 17th lowest in the country, and the tax on spirits is $3.60 per gallon, 13th lowest in the country.

ALSO READ: Companies Paying the Most (and Least) Taxes

7. New Hampshire
> Taxes paid by residents as pct. of income: 8.0%
> Total state taxes collected: $2.2 billion (2nd lowest)
> Tax burden per capita: $3,769 (23rd largest)
> Income per capita: $47,349 (9th highest)

New Hampshire is one of only a few states with no sales tax, which could help explain the overall low tax burden. The state makes up for lost revenue with a relatively high property tax. New Hampshire collected an average of $2,518 per resident in property taxes, more than all but two other states in 2011. Compared with other states, however, New Hampshire still collects among the least taxes. The state collected just $2.2 billion in taxes in fiscal year 2012, less than any other state except South Dakota. Because a good portion of property taxes are collected by local governments, the state of New Hampshire took in only $1,674 in taxes per capita that year, less than any other state.

6. Tennessee
> Taxes paid by residents as pct. of income: 7.6%
> Total state taxes collected: $12.0 billion (21st highest)
> Tax burden per capita: $2,777 (2nd smallest)
> Income per capita: $36,525 (14th lowest)

Tennessee residents paid just $2,777 per person in state and local taxes in 2011, the second-lowest amount in the nation that year. One reason for the state’s low tax burden was the
lack of individual state income tax on earnings. Instead, residents paid a 6% tax on dividends and interest payments. Fairly low property taxes may have also contributed to the limited tax burden in Tennessee. Residents paid just $800 per capita in property taxes in 2011, and the effective property tax rate in 2012 was just 0.74%, both at the lower end of all states. However, Tennessee’s total sales tax of more than 9% — when combining the state and average local sales tax rates — is the highest in the nation.