What are the Unfriendliest Tax States?

arizona desert

It’s almost busy season so let’s welcome it with a list of the 10 tax-friendliest and 10 (dare we say it?) tax-hostile states, courtesy of Kiplinger.

10 Friendliest Tax States

Alaska: There’s no state income tax, sales tax or inheritance/estate tax. Every legal resident who has lived there for a full year gets a “permanent fund dividend” that is linked to the state's taxation of energy production. The 2017 payout will be $1,100, though 2015’s peaked at $2,072.

Arizona: Yes, there’s an income tax, but joint filers won’t reach the top bracket unless they earn more than $300,000. The effective income tax is 3 percent for individual filers and 3.3 percent for joint filers. Gas taxes are the fourth lowest in the U.S. No inheritance or estate tax.

Delaware: No state or local sales tax, which spurred neighboring Salem County in New Jersey to slice its sales tax on many items by half. Income taxes, however, reach the top rate of 6.6 percent on income of more than $60,000 for single and joint tax filers. No inheritance tax and the estate tax expires at the end of the year.

The Dakotas: South Dakota has no income tax and the average state and local sales tax is 6.39 percent. No inheritance or estate taxes. North Dakota has an effective income tax rate of 1.10 percent for single filers and 1.56 percent for married filers. The average combined state and local sales tax is 6.78 percent. No inheritance or estate tax.

Florida: No state income tax. Sales taxes have an average combined state and local rate of 6.9 percent. But, in an effort to protect children, the state exempts helmets, booster seats and other child restraint items from the sales tax. No inheritance or estate tax.

Louisiana: Low property taxes ($707 on a median home price of $144,100) help offset a combined average state and local sales tax of 9.98 percent. The effective income tax rate is 3.2 percent for single filers and 3.9 percent for joint filers. Residents can deduct their federal income tax from state taxable income. No inheritance or estate tax.

Mississippi: An effective state income tax of 4.6 percent for individual filers and 4.9 percent for joint filers will be reduced in 2018. The average combined state and local sales tax is 7.07 percent. Homeowners enjoy cheap property taxes, paying $813 on a median home value of $103,100. No inheritance or estate tax.

Nevada: No income tax. The combined average state and local sales tax is 7.98 percent. No inheritance or estate tax. The state taxes entertainment at 5 percent or 10 percent, depending on the size of the venue. Exemptions to that include music that isn’t loud and entertainers who don’t attract attention.

Wyoming: The state collects money from oil and mineral rights so the combined average state and local sales tax is a low 5.42 percent. There’s no state income tax. No inheritance or estate tax.

10 Unfriendliest Tax States

California: Average combined state and local sales tax of 8.25 percent. Effective income tax rate of 3.1 percent on individual filers and 5 percent on joint filers but filers who reach the $1 million income level ($1.08 million for joint filers) will pay 13.3 percent. Beginning in January, marijuana will be taxed at 15 percent. Purchasers of alcohol exceeding 100 proof will pay twice as much for the state liquor tax, or $6.60 per gallon. No inheritance or estate tax.

Connecticut: State sales tax is generally 6.35 percent but some big-ticket items are taxed more. The effective income tax rate is 3.1 percent for individual filers and 5 percent for joint filers. Property taxes are the fourth highest nationwide, with homeowners paying $5,327 on a median priced home of $270,500. No inheritance tax but the state levies an estate tax starting at 7.2 percent on estates valued at $2 million or more. The rate goes up to a maximum of 12 percent on estates valued at more than $10.1 million. The only state to levy a gift tax, Connecticut applies that to real and tangible personal property in Connecticut and intangible personal property elsewhere for permanent residents. The state levies the tax only on amounts given after Jan. 1, 2005 and more than $2 million. The tax begins at 7.2 percent of the excess and goes to $748,200 plus 12 percent of the excess over $10.1 million.

Hawaii: The effective income tax rate is 6.5 percent for individual filers and 7.1 percent for joint filers. But the high rate of 8.25 percent kicks in for income above $48,000 for individual filers and married couples filing separately. The average combined state and local sales tax is 4.35 percent, but the tax is figured on vendors instead of buyers, which means buyers actually pay a bit more. There’s no inheritance tax. The estate tax matches its exemption to federal thresholds, which were $5.49 million in 2017. Estate taxes range from 10 percent to 15.7 percent. The state’s Exception Tree law allows a deduction of up to $3,000 in expenses per tree if it’s big, old, rare or a combination of all. The work must be done by a certified arborist, the tree must be certified and the deduction is allowed only every third year.

Illinois: A flat tax on income was raised in July to 4.95 percent from 3.75 percent. Property taxes are the second highest in the U.S., with owners paying $3,995 on a median priced home of $173,800. There’s no inheritance tax, but the estate tax carries a $4 million exemption. The maximum estate tax rate is 16 percent. While the average combined state and local sales tax is 8.64 percent, the combined rate can be as much as 10 percent in some areas.

Maine: State sales tax is 5.5 percent. Effective tax rate is 6.1 percent for individual filers and 6.6 percent for joint. There’s no inheritance tax, but an estate tax matches the federal exemption threshold of $5.49 million in 2017. Estate tax rates range from 8 percent to 12 percent. People who grow, buy, sell, handle or process blueberries pay a tax rate of $0.015 per pound.

Maryland: Sales tax is a flat 6 percent. Effective income tax rate of 6.1 percent for individual filers and 6.6 percent for joint filers. (The state’s 23 counties and Baltimore City may levy additional income taxes ranging from 1.75 percent to 3.20 percent of taxable income.) An inheritance tax of 10 percent is levied on people who are not lineal descendants, parents, grandparents or siblings — all of whom are not taxed. An estate tax is levied on estates of more than $3 million but that will become $4 million in 2018. For 2019 and beyond, Maryland will adopt the federal threshold. The maximum tax rate is 16 percent.

Minnesota: The average combined state and local sales tax is 7.30 percent. The effective income tax rate is 5.8 percent for individual filers, 6.6 percent for joint filers. There’s no inheritance tax but an estate tax exclusion will be $2 million in 2018. The maximum estate tax rate is 16 percent. Champagne is taxed six times as much as wine, even if the wine has the same alcohol content.

New Jersey: The state sales tax is 7 percent, but 3.5 percent is charged on in-personal sales in designated Urban Enterprise Zones. Salem County, which borders no-tax Delaware, also charged 3.5 percent. The effective income tax is 2.1 percent for individual filers, 3.6 percent for joint filers. But people making more than $500,000 in taxable income will pay 8.97 percent. Property taxes are $7,410 on a median home value of $315,900. The state imposes an inheritance tax ranging from 11 percent to 16 percent on transfers to certain beneficiaries of property valued at $500 or more. Inheritance tax that’s due is taken as a credit against any estate tax. The estate tax goes away in 2018. Vehicles that cost more than $45,000 or have a combined EPA fuel-mileage average of 19 or below pay a 0.4 percent surcharge.

New York: The average combined state and local sales tax is 8.49 percent. Income taxes range from 4 percent to 8.82 percent but local governments can add an average 2.11 percent. The estate tax exemption is $5.25 million in 2017. Beginning in 2019, it will be indexed to the federal exemption place then. However, the state estate tax is what’s called a cliff tax, meaning that if the estate’s value is more than 105 percent of the current exemption, the exemption will be unavailable and the entire estate will be subject to the state estate tax. There’s no inheritance tax.

Vermont: Average combined sales tax rate is 6.17 percent. The effective income tax rate is 3.6 percent for individual filers, 5.2 percent for joint filers. But a high rate of 8.95 percent is levied on people making more than $416,700. A median home value of $217,500 carries a property tax of $3,795. There’s no inheritance tax but an estate tax is levied if property is valued at more than $2.75 million. The maximum estate tax rate is 16 percent.

About Terry Sheridan

Terry Sheridan

Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.

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