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Which States Have the Best and Worst Tax Rates?

Apr 12th 2016
map of Alaska
iStock_Paul Hart_map of Alaska

It may be busy season for accountants but griping about taxes keeps a lot of us busy year-round.

With that in mind, WalletHub’s new report on states with the best and worst tax rates likely will fuel a few conversations.

The report compares state and local taxes in the 50 states and the District of Columbia against the national average of 10.71 percent. WalletHub data-crunchers calculated income taxes by applying the effective income tax rates in each state and locality to the average American’s income.

The fine print in the report lists the median US household as having an income of $53,889 (mean third quintile US income), owning a home valued at $175,700 (the median US home value), owning a car valued at $23,070, and spending annually an amount equal to the spending of a household earning the median income (though the amount isn’t indicated). Median state household incomes aren’t listed.

Here’s a snapshot of the report’s findings:

Alaska holds the No. 1 overall rank. Alaska has an effective total state and local tax rate of 5.69 percent on that median US household. Annual state and local taxes: $3,066. The difference between the state and national average tax rate: -46.85 percent. The annual state and local taxes on the median state household: $4,237. Overall rank based on the cost-of-living index: No. 6.

Delaware holds the No. 1 overall rank based on the cost-of-living index, but ranks No. 2 after Alaska in overall ranking. Delaware’s effective total state and local tax rate is 6.02 percent. Annual state and local taxes on the median US household income: $3,246. Difference between the state and national average tax rate: -43.74 percent. Annual state and local taxes on the median state household income: $3,830.

Illinois sits No. 51 in overall rankings. The “Land of Lincoln” has a 14.54 percent effective total state and local tax rate, $7,836 in annual state and local taxes on the median US income, a 35.83 percent difference between the state’s and national tax rate, $8,100 annual state and local tax bite on the median state household income, and an overall ranking of No. 43 based on cost of living.

New York ranks No. 51 based on cost of living, but ranks No. 46 overall. For New York, the total state and local tax rate is 13.38 percent, annual state and local taxes total $7,211 on the median US household income, the difference between the state tax and national average is 25 percent, and the annual state and local tax hit on the median state household income is $9,342.

Other findings for everyone to gnash their teeth over:

Food taxes. Thirty-eight states don’t. Of those that do, the worst are Louisiana, Idaho, Kansas, Mississippi, and Tennessee.

Gas taxes. The lowest is Alaska; the highest is Pennsylvania.

So, do people really consider taxes when deciding to move? Yep, say the five experts who offer commentary in the report. Taxes always are a consideration, but people weigh what they’ll get – figuring the higher the taxes, the better the schools, roads, and parks are. Property taxes are another burden, but people tend to associate those with better schools. Jobs, naturally, are a key driving factor.

Related articles:

And the State with the Lightest Tax Burden is …
How State and Local Sales Tax Rates Differ in US
States Take Different Approaches on Income Taxes

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