One way to minimize your tax burden — legally — is to live in a place that doesn't have state income taxes. That may sound appealing, especially if you make a high income, but states need funding to build infrastructure, and find other ways to make up for the lack of taxes collected.
So sure, not paying state income taxes may be good on your wallet, but does it actually benefit you?
Another consideration: quality of life. Will you settle in a spot that enhances your life for the better, or will you end up miserable?
You Still Need to Pay Other (Pesky) Taxes
States use taxpayer dollars to earn funding to pay state employees, build infrastructure and maintain public services. Aside from state income taxes, there are still two main financing methods: property and sales taxes. In general, property taxes tend to be higher in these nine states. Though it's heavily dependent on your home price, the higher property taxes may mean you’re not saving that much in total taxes after all.
Sales taxes may also be higher in states with no income tax as well. And while Florida is one state that relies on sales taxes, albeit more affordable than many other states, their property taxes are 0.97%, one of the highest in the country.
A state's overall tax burden also includes any applicable local taxes. Some municipalities or counties could impose additional sales taxes for certain categories. For example, St. John’s county in Florida imposes an additional 0.5 percent to 1.5 percent.
When combined, state and local taxes can be higher in states with no personal income tax. Washington’s sales tax is the highest amongst the other statesat 10.7 percent, not much lower than the national average at 11.2%. Florida comes at a close second at. 9.1 percent.
Here’s how to no tax states compare:
Alaska: 4.6%
Florida: 9.1%
Nevada: 9.6%
South Dakota: 8.4%
Tennessee: 7.6%
Texas: 8.6%
Wyoming: 7.5%
That's not to say you'll end up paying more by the way of sales taxes than you would income taxes. Rather, it's part and parcel what you'll need to consider during a move. Some may argue that sales taxes seem more straightforward and less likely to go up over time compared to income taxes. Visitors and tourists also contribute to sales taxes, so the burden isn’t all on residents.
What is the Cost of Living Like in States With No Income Tax?
Cost of living could significantly raise or lower your expenses. For the most part, states in the South tend to cost less overall, whilestates in the Northeast cost the most. Out of all the states with no personal income tax, Florida and Nevada cost the most to live. According to the Missouri Economic Research and Information Center's cost of living data series, Nevada's cost of living index sits at 101 and Florida at 100.7, slightly higher than the national average of 100. The others sit below the national average, though some are higher compared to some Midwest and Southeastern states.
Breaking it down even further, some of these states have higher housing and transportation costs than most. The latter may be for different reasons, like lack of reliable public transportation, amenities spread far apart or high gas prices. Washington, for example, has some of the highest gas prices, at $4.94 per gallon in 2023. Florida’s transportation and housing costs are also higher than the national averages.
Look at the cost of living index — what costs are in comparison to the U.S. national average — in the state where you think you may want to move:
Alaska: 125.2 (much higher than average)
Florida: 100.7 (around the average)
Nevada: 101 (around the average)
South Dakota: 92.4 (lower than average)
Tennessee: 90.2 (lower than average)
Texas: 92.7 (lower than average)
Wyoming: 92.4 (lower than average)
Considering these are two of the biggest line items for most budgets, it’s worth noting how these may affect how much you’ll pay if you live in these states. For the most part, grocery prices seem to hover around the national average of around $270 per week. Still, some pay more than others Alaska, Florida and Washington are among the states with the highest average grocery costs compared to the national average. When breaking down U.S. Census data, Miami and Houston have some of the highest weekly grocery costs in the country.
Consider Your Income Before Moving
Unless you have remote work opportunities or have other arrangements with a company in other states, you may have to think about job opportunities where you move. While the average salary in the U.S. is $77,463 according to 2022 data, your job prospects and pay may be lower compared to the local standard of living. Florida has an average salary of $63,762 and adjusted for inflation, Washington’s average wage in 2021 was $81,245.
Whatever the costs, the decision to move somewhere with no state income tax is a personal choice and needs to be based on your financial and lifestyle circumstances. For example, you earn a high salary, are able to work remotely and housing costs are significantly lower than where you’re currently living. In this case, it may make sense to move.
As with all decisions, there are trade offs to be made. The question is what you want to make your priority. After comparing housing, school standards and your overall standard of living, see whether it’s worth it — financially or not — to pack your bags.
