While the federal government primarily collects income tax, the states generate tax revenues from several different types of tax. Income taxes, sales tax and property tax are the big three for state and local governments. Some states collect all three, whereas others do not -- for example, a few states do not impose an income tax.
Seven states -- Wyoming, Washington, Texas, South Dakota, Nevada, Florida and Alaska -- do not collect any income tax. Tennessee and New Hampshire collect income tax only on dividends and interest. Without a state income tax, residents of these states receive significantly higher take-home pay than residents of states with income taxes.
Sales tax can be collected at both the state and local levels. The states of Delaware, Montana, New Hampshire and Oregon do not have sales tax at any level. Alaska has no state sales tax, but local sales tax can be as high as 7.5 percent. Colorado has a 2.9 percent sales tax with local taxes ranging from 0 to 7 percent added on top of the state rate. According to the Forbes website, among states that do impose a sales tax, the average sales tax is 9.6 percent.
The property tax rate in most states is around 1 percent of the home's assessed value. Six states have property tax rates of 0.5 percent or less: South Carolina, West Virginia, Delaware, Alabama, Hawaii and Louisiana. The Louisiana property tax rate is 0.18 percent -- less than one-tenth of the 2.5 to almost 3 percent paid by New York and New Jersey homeowners.
Total Tax Burden
The different types of taxes mean that you pay different amounts depending on where you live and what your personal circumstances are. The Tax Foundation rated the states based on a calculation of total tax burden. They determined that the state with the lowest overall tax burden was Alaska. Rounding out the top 10 states for lowest overall tax burden were Nevada, South Dakota, Tennessee, Wyoming, Texas, New Hampshire, South Carolina, Louisiana and New Mexico.
- Forbes: Average U.S. Sales Tax Rate Drops--A Little
- Investment News: States With the Lowest Property Taxes
- Tax Foundation: State-Local Tax Burdens Fall in 2009 as Tax Revenues Shrink Faster than Income
- taxadmin.org: State Individual Income Taxes
- Sales Tax Insitute: State Sales Tax Rates
- Tax Foundation: Property Taxes on Owner-Occupied Housing by County, 2005 - 2009
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