The Best and Worst Tax States

Here's a chart from MSN Money that lists tax burdens by state -- including major state taxes and federal tax burdens. This analysis yields the following five as the best states to live in if you want to minimize your taxes:

1. Oklahoma
2. Alabama
3. Alaska
4. Mississippi
5. Tennessee

And here are the five worst:

1. Connecticut
2. New York
3. New Jersey
4. Nevada
5. Vermont

FYI, my state of Michigan ranks #21 overall, but is #14 (14th worst) when ranked on state taxes alone. Thanks, Jenny G., your plan to drive our economy into the ground certainly seems to be working.

A few thoughts on these numbers:

1. I've lived in Tennessee and if I could I'd move back in a heartbeat. It's a GREAT place to live.

2. The rest of the "best" list looks like places I wouldn't want to live (especially Alaska -- simply too cold!), though I'm sure they each have something good to offer. I'm just not aware of what.

3. Looks like the Northeast is tax-central. I guess that's why all the extra services are so great in those states, huh? Oh, wait a minute...

4. Seriously, the high taxes in some states are reasons why you wouldn't want to live there -- and could get rich by moving elsewhere.

5. As our economy becomes more and more information-based, I think companies (with less hard assets and more intellectual assets -- making moving easier) will consider taxes in a major way as they decide where to locate and/or whether it's worth it to move the company for cost reasons. I have friends already considering these issues since Michigan is becoming more and more unfriendly for small businesses.

Comments

[No Debt Plan]

Woohoo for Alabama... doesn't mean it's great to live here, but it'll do. :)

[J.J. Merrick]

Yeah Tennessee is pretty nice. Nashville is at least :-)

The reason we are on there probably is the fact we don't have an income tax but they make it up with a 9.75% sales tax on just about everything. Food is taxed at like 8% which hurts pretty bad too.

oh well 6 of 1, half dozen of another.

[pharmboy]

I've seen these lists before and this article calculated the tax burden in a more comprehensive way I guess. I live in Oklahoma, but because I have a high income I never think of Oklahoma as having the lowest taxes in the country. I think the article somehow used the fact that states with low income per capita pay less taxes than states with high per capita income.

Oklahoma's state income rate was at 6.65% until last year and now the top bracket is 5.65%, so I am happy about that, but I think the rankings are misleading. My family plans on moving to Illinois in the future and their flat 3% income tax looks appealing to me, but maybe I need to start looking at other sales taxes, etc.

[Greg]

I know that you state that this list tells "the best states to live in if you want to minimize your taxes," but I'm not crazy about the implications that you and this article seem to be drawing. You seem to be implying that states with high taxes are the worst places to live and those with low taxes are the best. I disagree.

I lived in Virginia (ranked at #17 on the list) for four years before I moved to New Jersey (#3). You joke about the "extra services" in the Northeast not being worth the taxes, but I disagree. I like living in New Jersey much better than I did Virginia for many reasons, and some of those necessitate higher taxes. The schools and public services such as Early Intervention are supported much more here that Virginia, for example.

The list also does not factor in cost of living. Yes, taxes are higher here, but I got a 50% raise when I moved here and my wife's income has tripled since we were in Virginia.

A more useful ranking would be something that compares taxes to benefits from those taxes. Or even comparing the efficiency of the government, how much waste, etc. Just listing tax rates and ranking them as "best state to live in" is not very valuable information for me. I'd love to see an article that provided that kind of analysis, but I imagine that it's too difficult and too subjective to do.

[Bobby]

I don't get this list. I went to the website and it determined Texas State burden to be around 19%. We don't pay state taxes. It also determined are sales tax to be around 6%, actual is 8.25% Can someone tell me exactly how these numbers are being generated?

[Blaine Moore]

Looks like Vermont beat us in the state tax burden by a whopping 0.1% - oh well, I knew Maine had a high tax rate.

[FMF]

Greg --

Touchy, huh?

What I'm saying is that taxes are part of what makes one area more expensive than another. And, as such, these factors need to be considered when people decide to live in/move to an area. Read the post of mine linked to above regarding the cost of living in an expensive area and you'll see where I'm coming from.

[FMF]

Bobby --

I think you need to read the chart closer. The 6.25% for Texas has a note by it and I don't see 19% at all -- I see 9.3% (which is made up of the other factors they list.)

[Bobby]

FMF,

Your right about the 9.3%, I looked at the page then tried to recall everything from memory. Which I may also say is another good reason for new tab opening on links...lol. But these stats are very generalized. You can avoid alot of taxes if you put your mind to it. My wife bikes to work, I'm trying to find a safe route myself. Not smoking , drinking or the others. I like Dallas, Texas, and apparently alot of large corps do too.

[Suze]

Juneau, Alaska isn't that much colder than Michigan!

I'd have to see how the tax dollars work in each state in order to determine if a lower state tax burden is actually something I'd personally want to live with. If it means poor schools and absolutely no public transportation, then it may not be for me.

It's interesting that the tax burden is (generally) higher in heavily populated states. People must choose to live there for a reason.

[Seth]

Wow that was not a smart comment to make that uou wouldn't want to live in certain states. I bet you haven't been to this website:

http://www.mississippibelieveit.com/

Seriously, Mississippi has a bad reputation, but it is a wonderful place to live and raise a family.

[FMF]

Seth --

So you'd like to live in every state? Or are there states you wouldn't want to live in?

[r477]

It is still a bit disingenuous to use the chart to say whether or not a state is better to live in. The article itself provides a different understanding:

"Factor in federal tax and the gap grows even wider. Those who earn more money generally pay a greater percentage of it in federal taxes, so states with a greater percentage of highly paid workers end up paying more."

It seems like the chart could also be used to gauge how much potential wealth there is to earn in any one state or area. In that case the Northeast seems like a magnet for high-income-earners.

[Bobby]

I think people maybe missing the point and taking their states standing a little personal. This is just one of the MANY factors to consider when thinking of moving to another state for whatever reason. Maybe paying taxes isn't your biggest concern, maybe the weather, schools or whatever. But it is an important thing to consider in regards to your wealth.

[Greg]

I guess I am a bit touchy. I'm just a little bothered by the constant message that all taxes are bad. They're not bad when they pay for things that society values. They are bad when they are wasted and spent needlessly.

Sorry if I came off as a nut job. Keep up your good work.

[FMF]

Greg --

Ha! I make a living by coming off as a nut job!! ;-)

My issue with taxes isn't paying them -- I'm all for helping others and society -- but it's the waste. Seems like there's just so much spent on needless, expensive efforts, especially at the federal level where every elected official has his/her favorite pork barrel project.

I am actually happy living in Alabama and one of the reasons is the fact that the cost of living is so reasonable it is really easy to get ahead here. There is plenty to keep you occupied as well, including beaches which I guess some people forget about, but I guess if you don't like where you live then you can always "upgrade" to another state.

[Jesse]

Its amazing how much of a difference it makes...talking to some friends in New York not only is it more expensive to live than Colorado but they also get to keep less of their income. Ouch!

[snappyfrog]

I am fortunate to have a job where it does not matter where I live (trucker). I picked East TN not only for the scenery, but no state income tax and low property tax (not to brag here ok). We have a 2000sq ft home on 2 acres of land and our property taxes this past year was only $435. That is really hard to beat!!

[Seth]

I can find something great about all 50 states. Sure there are areas that I would rather live, but there is not one state that I wouldn't want to live. God bless the USA.

Have you ever been to Mississippi? Do you have actual reasons for your negative view or are you just influenced by the negative connotations of Mississippi?

[Anonymous Coward]

This information ( concerning Indiana anyway) is a bit stale... the sales tax in Indiana just crept up from the 6% listed to 7%.

[Meg]

I'd like to point out that these sorts of rankings take into account ALL taxes, including "sin" taxes such as those on alcohol, tobacco, etc. Southern states are notorious for lower taxes on such items, as well as maintaining low property taxes.

For that reason I'll likely always live in one of those states. I find it abhorrent that a family might be forced to sell or give up their home even if it has been paid off for generations, simply because they or their heirs can't afford the property taxes on it.

Just a side note - I love TN as well; I went to high school there. But I am from AL, and it is great too. The scenery and culture is very similar to TN. Plus, my parents' property taxes on their 10,000 SF home were only a couple hundred dollars. My Dallas property taxes on my 800 SF condo were $3000! At least we don't have income tax in TX I guess. :-)

[FMF]

Seth --

Here's what I said:

"The rest of the "best" list looks like places I wouldn't want to live (especially Alaska -- simply too cold!), though I'm sure they each have something good to offer. I'm just not aware of what."

If you're offended for Mississippi over that simple comment, then I'm afraid you're going to be a bit too touchy to read most of my posts.

[Seth]

I admit that once I read that statement I didn't allow myself to get to the qualifying statement, "but I'm sure they all have something to offer" That is a crucial part of your thought - you covered your self with that statement.

Anyways, Mississippi is a great place to raise a family, and my point was to call you out if you have never even been here. In addition, Mississippi is hurt by preconceived notions, while a state like Tennessee has a great reputation - but is there ultimately that much of a difference? Or maybe perception is everything.

[FMF]

Seth --

FWIW, I have been to Mississippi a couple times and have known lots of people from there (many were in TN.)

[Derek]

We need the Michigan FairTax in Michigan! Take the power away from Jenny G. and a legislature that can't act. Lower our taxes, stimulate business! Get out there, sign a petition and have others sign as well! http://www.mifairtax.org/

[Dave]

The chart seems to be an average across counties. There are also several payroll and property taxes which seem to be omitted. A weighted chart which accounts for average pay would be relevant. Also, a study could be undertaken to measure the general “non-helpfulness” of the various taxing offices.
Example: Pittsburgh, Pa has a ridiculous amount of small taxes on wage earners which employers have to file separate returns on each month and quarter. Georgia’s department of industrial relations borders incompetency in everything but their ability to transfer you to someone else. And Mississippi’s property tax department (especially when dealing with private property in Jackson co area) is purposefully hard to deal with because the selling of delinquent property is a big money maker for them.