In either case, the seller files returns and remits the tax to the state. In states where the tax is on the seller, it is customary for the seller to demand reimbursement from the buyer. Sellers generally must collect tax from in-state purchasers unless the purchaser provides an exemption certificate. The more you earn and the higher the tax rate in your state, the more you can potentially save by moving to an income tax-free state. The nine states that don’t have an earned income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

For instance, ​​Tennessee, Florida, Washington, and Nevada are some of the states with the lowest income taxes and highest state sales tax rates. Tennessee, Washington, and Nevada each have a state sales tax rate of 7%, while Florida has a state sales tax of 6%, which is higher than the average state sales tax rate. Contrary to some misconceptions, life in states with no income tax isn’t a tax-free haven. While residents don’t pay income taxes, they may encounter other heavy tax burdens, like higher sales taxes, property taxes, or excise taxes. For instance, Washington has one of the highest combined state and local sales taxes (9.38%).

Which 9 States Have No Income Tax, and How Can You Benefit from Lower Tax Rates on Individual Income?

Texas is also one of nine states that don’t have an income tax on the “earned income” of people working there. Assessing the cost of living is vital when considering relocation. Beyond tax savings, evaluate housing, food, healthcare, and overall lifestyle expenses to determine if moving balances financial benefits with quality of life. Living in an Tax free states in the USA, except for New Hampshire and Washington, shields capital gains from state taxes, reducing your tax liability to the federal level based on the asset’s holding period. The federal government was granted the authority to impose taxes on the citizens after adopting the Tax free states in the USA constitution.

Capital assets include personal assets in a number of jurisdictions. Some jurisdictions provide preferential rates of tax or only partial taxation for capital gains. Some jurisdictions impose different rates or levels of capital-gains taxation based on the length of time the asset was held. Because tax rates are often much lower for capital gains than for ordinary income, there is widespread controversy and dispute about the proper definition of capital. Property taxes are assessed at higher rates in states without income tax, such as New Hampshire, which has a property tax rate among the highest in the nation at nearly 2%. On top of that, excise taxes on items like fuel and alcohol further contribute to state and local tax revenue.

Comparing the 9 states with no income tax

  • This category includes metrics such as literacy rates, enrollment rates, teacher-to-student ratio, and educational attainment.
  • Some jurisdictions provide preferential rates of tax or only partial taxation for capital gains.
  • In this way, the state is able to reduce the tax burden on its citizens.

This additional tax rate may be 1% or 2% or other amounts depending on the county in which the business is located. For example, in Marion County, the sales tax for restaurants is 9%. There is an additional 2% tax on restaurant sales in Marion County to pay for Lucas Oil Stadium and expansion of the Indiana Convention Center. The state does, however, impose a tax on the gross receipts of most businesses, and a 4.25% document fee on vehicle registrations. Business and occupational license tax rates range from 0.096 percent to 1.92 percent, depending upon the category of business activity. Many states require individuals and businesses who regularly make sales to register with the state.

Florida

The rate was raised from 5% to 6% as a temporary measure in the 1970s, but has not since been lowered. Rhode Island raised its sales tax from 6% to 7% in the early 1990s to pay for the bailout of the state’s failed credit unions. The change was initially proposed as a temporary measure, but was later made permanent. Other taxes may also apply, such as the state’s 1% restaurant tax. Many items are exempt from the state sales tax, e.g., food (excluding single serve items), prescription drugs, clothing and footwear (except for individual items priced greater than $250193), newspapers, coffins, and original artwork.

Cost of Living Analysis

For taxpayers in a majority of the states in the U.S., tax time means filing a return for federal and state income taxes. While these states share the commonality of no income tax, their overall tax structures vary. Some rely heavily on sales and excise taxes to generate revenue, while others may have higher property or corporate taxes. It’s essential to consider the broader tax implications before making a decision. One indicator of the taxpaying experience was captured in the “Doing Business” survey,71 which compares the total tax rate, time spent complying with tax procedures, and the number of payments required through the year, across 176 countries. The “easiest” countries in which to pay taxes are located in the Middle East with the UAE ranking first, followed by Qatar and Saudi Arabia, most likely reflecting low tax regimes in those countries.

States With No Income Tax

  • For example, Washington state has a tax of 49.4 cents per gallon on gasoline, one of the highest rates in the nation.
  • At Taxfyle, we connect small businesses with licensed, experienced CPAs or EAs in the US.
  • Understanding the kinds of taxes that states can collect can be complicated.
  • I work for one of the largest independent financial publishers in the world – representing over 1 million people in 148 countries.
  • We will look at the requirements to get a tax refund in the next section offered by some states in the US.

This category includes metrics such as military spending, troop strength, equipment and technology, and readiness for combat. Geography is the study of the physical features and human activity on the Earth’s surface. This category contains metrics such as land area, natural resources, and topography, along with groupings of states by their location in the US. We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

If someone sells less than $4 million in annual sales, they do not have to collect or pay sales tax on out-of-state sales. When states pass a budget each year, they look at the income they have generated and the funds that will be allocated to them by the federal government. While residents in these eight states do not pay income taxes to the state, they do still have to pay the federal government. But it’s one of the most expensive states to live in when it comes to property taxes. According to the Tax Foundation, Texas homeowners pay an average of 1.60% of their home value in property taxes.

In developing countries

In this case, neither of these circumstances are fulfilled and the unpaid assessments are categorized as compliance assessments. The amount of assessments that were written off and excluded from accounts receivable for financial years 2023 and 2024 are $76.6 billion and $77.3 billion, respectively. These written-off accounts are the assessment amounts that were to be collected by the statutory authority at the end of the financial period. The OECD’s Annual Revenue Statistics for 2023 revealed that the US tax-to-GDP ratio increased by 1.2 percentage points from 26.5% in 2021 to 27.7% in 2022. However, the US tax-to-GDP ratio was lower than the OECD average of 34% in 2022. In certain states, if they charge sales tax and have a policy in place to refund sales tax, then you would likely get the tax refund.

America is one of the best places to buy clothes, electronics, etc. If you are a tourist from Asia or Europe, you will find the prices much cheaper when you buy things in the US at outlet malls. Both of these figures are the second highest in the tax free states in us nation to California. Free filing of simple Form 1040 returns only (no schedules except for Earned Income Tax Credit, Child Tax Credit and student loan interest). State tax authorities look for patterns that suggest you haven’t really moved.

Alaska’s unique system involves no state sales tax or personal income tax, but local taxes and revenue from oil extraction help fund state services. Similarly, Nevada’s economy thrives on tourism and gaming, contributing to its tax revenue without relying on income taxes. States like Alaska, which doesn’t have state sales tax or income tax, rely on significant revenue from the oil industry and federal aid to balance their budgets. These unique tax structures vary across the nine states that don’t levy individual income taxes, ensuring essential services like education and infrastructure are funded. Just like Oregon, Delaware does not have a statewide sales tax or any form of local sales tax. With a sales tax burden of 7.21%, Delaware ranks third among the states with no sales tax rate.

Cuyahoga County has the highest statewide sales tax rate (8%). Tax increments may not be less than 0.25%, and the total tax rate, including the state rate, may not exceed 8.75%. County permissive taxes may be levied by emergency resolution of the county boards of commissioners.

A notable example is the likin, which became an important revenue source for local governments in the late Qing China. VAT is usually administrated by requiring the company to complete a VAT return, giving details of VAT it has been charged (referred to as input tax) and VAT it has charged to others (referred to as output tax). The difference between output tax and input tax is payable to the Local Tax Authority. You can file for free yourself with TaxAct’s Free Edition if you meet the qualifications below, including filing using IRS Form 1040 only without having to attach any forms or schedules.

Of course, taxes aren’t the only factor that may affect your decision to move. If you’re moving for a new job, to be closer to family, or for a better quality of life, then taxes may just be a side-effect of the move. Unless otherwise stated, our results are based on hypothetical trades that do not factor in commissions and other fees that will affect your return. Our customer service team is available to answer your general customer service questions. However, they are not licensed investment advisors and so cannot offer you personalized investment advice.