Remember when my cousin Dave moved from New York to Florida last year? He wouldn't stop bragging about keeping his entire paycheck. "No state income tax, man!" he'd say. But then his first property tax bill arrived. Let's just say he stopped throwing those beach parties for a while.
That's the thing about states with no income tax - it's never as simple as it sounds. I've crunched numbers, talked to accountants, and even made some costly mistakes myself. If you're seriously considering one of these states, you need the full picture. Not just the Instagram version.
What Does "No State Income Tax" Actually Mean?
First off, let's kill a myth. "No income tax" doesn't mean tax-free living. These states still get their money - they just do it differently. Usually through higher sales taxes, property taxes, or special fees. Alaska even slaps you with oil revenue charges.
The nine states without personal income tax are:
| State | Nickname | How They Tax Instead |
|---|---|---|
| Florida | Sunshine State | Tourism taxes, high property insurance |
| Texas | Lone Star State | Property taxes (3rd highest nationally) |
| Tennessee | Volunteer State | High sales tax (9.55% avg) |
| Nevada | Silver State | Casino/gambling revenue |
| Wyoming | Equality State | Mineral extraction taxes |
| South Dakota | Mount Rushmore State | Tourism and bank taxes |
| Alaska | The Last Frontier | Oil revenue (and high cost of everything) |
| Washington | Evergreen State | Sales tax + business taxes |
| New Hampshire | Granite State | High property taxes + business taxes |
Notice anything? Seven of these nine states have above-average sales taxes. Six have higher-than-average property taxes. There's always a catch.
Tax Tip: Before packing your bags, calculate your total tax burden. Use tools like SmartAsset's Tax Calculator comparing your current state versus your target state with no income tax.
The Hidden Costs They Don't Tell You About
When I first researched moving to a no income tax state, I almost fell for the hype. Then I discovered Nevada's hidden taxes:
- Hotel tax up to 13.5% in Vegas
- 9% alcohol tax
- $200 annual business license fee (even for freelancers)
Property Tax Shockers
My friend in Austin pays $12,000/year for a 1,500 sq ft house. That's higher than her California friends pay. In states with no income tax, property taxes often become the cash cow.
| State | Avg Property Tax Rate | National Rank |
|---|---|---|
| Texas | 1.81% | #3 highest |
| New Hampshire | 2.05% | #2 highest |
| Florida | 0.89% | #23 highest |
| Washington | 0.94% | #19 highest |
Sales Tax Tricks
Tennessee charges 7% state sales tax plus local taxes averaging 9.55%. But then they tax groceries at 4%! Meanwhile, Alaska technically has low sales tax... until you see shipping costs.
Who Really Wins in States with No Income Tax?
Let's cut through the noise:
| Who Benefits Most | Who Gets Less Advantage |
|---|---|
| High-income retirees | Low-income families |
| Remote workers with coastal salaries | Service industry workers |
| Investors living on dividends | Homeowners with mortgages |
| Business owners (some states) | Renters facing passed-on costs |
I learned this the hard way when consulting for a Texas restaurant owner. He saved $15,000 in income taxes but paid $8,000 more in property taxes and $5,000 in inventory taxes. Net savings? $2,000 - not the windfall he expected.
State-by-State Real Talk
Florida: The Retirement Trap?
Everyone thinks Florida's perfect for retirees. But insurance costs are insane. My neighbor pays $6,000/year for hurricane coverage on a modest condo. Plus:
- Average home insurance: $4,231/year (national average $1,544)
- Tourist-area parking fees up to $40/day
- High HOA fees with mandatory hurricane reserves
Texas: Business Friendly?
Yes, Texas has no personal income tax. But their franchise tax hits businesses with revenue over $1.18 million at 0.75%. And property taxes... ouch. A $400k home in Dallas costs $9,000/year just in property taxes.
Tennessee: The Sales Tax King
Memphis has combined sales taxes up to 9.75%. They even tax clothing! But utilities are cheaper than most states, and Nashville's job market is booming.
Washington's Secret Income Tax
Officially a state with no income tax? Yes. But their 7% capital gains tax kicks in on profits over $250,000. And Seattle's gas taxes are the nation's highest at $0.67/gallon.
Cost of Living vs. Tax Savings
I made this spreadsheet when deciding whether to leave Colorado:
| Expense Type | Denver, CO | Austin, TX (no income tax) |
|---|---|---|
| State Income Tax | $6,400 | $0 |
| Property Tax | $2,800 | $9,200 |
| Average Utilities | $220/month | $310/month |
| Home Insurance | $1,200 | $3,800 |
| Total Annual Difference | Texas costs $4,800 more | |
This was for a $350k home. The math might work if you're moving from California or New York, but not from medium-tax states.
Jobs and Salaries in No Tax States
Don't assume salaries match high-tax states. Tech jobs in Austin pay 12% less than Silicon Valley. Tennessee healthcare salaries run 8% below national average. Exceptions:
- Oil/gas jobs in Texas and Wyoming pay premiums
- Florida tourism management pays surprisingly well
- Remote workers keep coastal salaries (the real winners!)
My buddy took a $15k pay cut moving to Tampa for "the tax savings." After living costs, he actually netted less. Do your homework.
Strange Taxes You Never Expected
These states get creative:
- Tennessee taxes investments over $1,250 at 1% ("Hall Tax")
- New Hampshire taxes dividends and interest at 5%
- Washington taxes soda, bottled water, and even gum!
- Nevada charges $200/year for business licenses (even solopreneurs)
Watch Out: Seven no income tax states tax Social Security benefits. Only Florida, Texas, Washington, and Wyoming fully exempt them.
Frequently Asked Questions
Do states without income tax have higher sales tax?
Usually, yes. Seven of the nine no income tax states have above-average sales taxes. Tennessee leads with average combined rates around 9.55%. Only Alaska and New Hampshire buck this trend.
Is it cheaper overall to live in a state with no income tax?
Depends entirely on your situation. High earners often save, especially if they rent. Homeowners with kids? Probably not. Retirees with investment income? Mixed bag. Run your specific numbers.
Can I avoid all taxes by moving to these states?
Absolutely not. You'll still pay federal taxes, and these states make up revenue elsewhere. Florida has hurricane taxes. Texas has property taxes. Tennessee has sales taxes. They all get their money.
Which state with no income tax is best for retirees?
Florida wins for most retirees despite insurance costs. Why? Homestead exemptions cap property tax increases, no estate tax, and warm weather. But if you hate humidity, consider Tennessee or Nevada.
Do these states tax remote workers differently?
Most don't care where your employer is located. But tricky cases arise if you work across state lines. I once saw someone taxed in both California and Nevada - took two years to resolve.
Are there any states trying to eliminate income tax?
Mississippi and North Carolina are phasing theirs out by 2030. Georgia's considering it. But expect pushback - when Kansas tried it, they nearly bankrupted schools.
Should You Actually Move?
Only if:
- You earn over $100k (especially from investments)
- You rent instead of own
- You work remotely keeping a HCOL salary
- Climate preferences align (don't move to Alaska for savings then hate the cold)
For everyone else? The savings might disappoint. My accountant always says: "Don't let tax tail wag the life dog." Choose where you'll be happy first, then optimize taxes.
Last thought: I know three people who moved back within two years. Not because the tax math didn't work, but because they missed family or hated suburban sprawl. Financial benefits only matter if you actually like living there.
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