State and local governments maintain roads, run schools and pay police, and they need to fund public functions and state infrastructure. For most Americans, this additional tax burden comes from a combination of state income taxes, state and local sales taxes, and local property taxes.
A Note on Taxes
The federal government had limited authority to collect taxes until the Sixteenth Amendment was ratified in 1913. States were left to their own devices to fund the cost of government. As a result, each of the 50 states and the District of Columbia has its own unique tax scheme.
States With No Income Tax
Seven states do not collect tax on personal income, and Tennessee is poised to join the list.
States With the Lowest Effective Property Taxes
For homeowners, the annual property tax bill can be a hefty expense. When calculating your mortgage, accounting for taxes can help you keep your housing costs in check.
To calculate the least and most tax-friendly states, we researched income, sales and property tax rates by state. Using expenditure and income data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, we constructed a hypothetical family with one dependent, gross income of $82,852, and a home worth $349,400 (the median new home price at the time we conducted our research).
We estimated the state taxes paid by a married couple making the median national income of $82,852, with one child and who own their $349,400 home to assess each state’s tax-friendliness. States are sorted by lowest to highest tax “grade.”