Unequal Taxes: Good States for Taxes & Bad States for Taxes

Last updated on February 4, 2022

Paying more taxes is now a reality with the hike in payroll taxes for 2013. While the rise in payroll taxes is uniform, not all taxes are equal. In different states, taxpayers pay a different amount in taxes even if their earnings are the same. From state to state, taxes, including individual income tax, corporate tax, property tax, sales tax and/or unemployment insurance vary. The states with higher taxes are said to be at a disadvantage because they are less attractive to businesses.

According to the Tax Foundation, a non-partisan tax research group based in Washington, D.C., the 10 states with some of the lowest taxes in the country are:

1. Wyoming
2. South Dakota
3. Nevada
4. Alaska
5. Florida
6. Washington
7. New Hampshire
8. Montana
9. Texas
10. Utah

The Tax Foundation observes the absence of a major tax being a vital factor in these states being the top 10 states having the least taxes. Even though every state charges a property tax and an unemployment insurance tax, many of these states do not have one or more of the major taxes, namely corporate tax, individual income tax, and sales tax. Wyoming, Nevada, and South Dakota have no corporate or individual income tax; Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax.

The Fiscal Times reveals the advantages these states have over others because of fewer taxes:

“A state that raises sufficient revenue without one of the major taxes, all things being equal, has an advantage over those states that levy every tax in the state tax collector’s arsenal. They’ll be more competitive in attracting new business and more effective at generating economic and employment growth, since high taxes are a turn-off for both businesses and individuals.”

The individual income tax is a major source of revenue for states. Among the top 10 states are seven states that have no personal income tax. These are: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. The Fiscal Times adds: “While the top income tax rate ranges from 11 percent in Hawaii to 3.07 percent in Pennsylvania, the ranking for income tax also takes into account which states have an AMT, how complex the income tax code is, whether states impose a “marriage penalty” (when two singles can have a lower tax bill than a married couple), and whether capital income is taxed.”

The Tax Foundation rates 10 states having the highest taxes in the U.S. as:

1. New York
2. New Jersey
3. California
4. Vermont
5. Rhode Island
6. Minnesota
7. North Carolina
8. Wisconsin
9. Iowa
10. Maryland

New York tops the list of the worst U.S. state in terms of taxes. New York has the highest individual income tax, sixth-highest unemployment insurance tax, and the sixth-highest property tax. Studies show that states with higher taxes also lead to domestic migration where people move from high-state tax states to lower-state tax states. In the end, states with high taxes may lose businesses and individual taxpayers to states with lower taxes.