Determining the best tax friendly state to retire to depends primarily upon the income source and anticipated assets and expenditures. Some states do not charge income tax at all and some only tax certain types.
The seven states compared here have no income tax at all. However, they are not all “equally” friendly tax states for retirement. Read further to learn why.
Information on significant taxes other than income tax charged is provided for each state.
Sales and use and/or property tax rates may vary by county within some states, in which cases the ranges are provided. Property taxes are presented in terms of the percentage of assessed market value (AMV) that is taxed along with information regarding exemption amounts. Drug tax refers to prescription drugs only. Food tax refers to groceries, not prepared foods.
As a final consideration this presentation includes the tax cost of death in the form of estate or inheritance taxes (E ) or (I) to be paid by survivors. Washington is the only state included here that charges only estate tax. The remaining states listed do not charge estate or inheritance taxes.
States With No Income Tax
-Alaska / Sales Tax 0 – 6 percent / 0 – 1.85 percent AMV / Food zero percent / Drugs zero percent /Clothing zero percent/ E No / I No
The state of Alaska has no sales and use tax, however, some of its municipalities and boroughs do. The rate the municipalities and boroughs charge ranges from 0 to 6%, not including lodging taxes.
Only a small portion of Alaska’s total land mass is subject to a property tax:
There are approximately 395 communities in Alaska, of which only162 are incorporated municipalities (Local Governments) which can tax. Only 25 of the municipalities in Alaska levy a property tax.
Alaska exempts the first $150,000 of assessed value from property taxes for senior citizens aged 65 or older. The average tax rate for the property value amount above $150,000 is 1.80 percent.
-Wyoming / Sales Tax 4 – 6 percent/9.5 percent AMV / Food zero percent / Drugs zero percent / E No / I No
Wyoming state sales tax is 4 percent. However, local jurisdictions may charge an additional tax up to 3 percent more. Currently, none of them charge more than 2 percent.
Three of the counties, Freemont, Park and Sublette, do not charge local taxes. Six counties charge 2 percent, Albany, Carbon, Crook, Laramie, Niobrara, Sheridan, Sweetwater and Teton. Campbell charges 1.25 percent and the remaining 11 counties charge 1 percent. Details may be viewed here.
For most property, only 9.5 percent of market value is subject to tax, so a home worth $100,000 is taxed on $9,500 of assessed value.
-South Dakota / Sales Tax 4 – 6.00 percent / 00.37 – 01.34 percent AMV / Drugs 0 percent / E No / I No
South Dakota sales tax is 4 percent. However, municipalities may assess an additional amount up to 2 percent. Unprepared food (groceries) is exempt from local sales tax. Residents who are age 65 and older and have a yearly income of under $10,250 (single) or in a household where the total income was under $13,250 are eligible for a sales tax refund in an amount calculated based upon income. Sales tax rates by county may be viewed here (scroll down for rate display).
The state of South Dakota does not collect or use revenues from property tax. Each county administers and collects property tax. Shannon county has the lowest property tax rate at 0.37 percent and Lincoln county collects the highest at 1.34 percent. Property is assessed at 85 percent of market value between counties. South Dakota offers seniors aged 65 and older a refund from 35-55 percent of property taxes paid based upon their income and household size.
The state has a property tax homestead exemption that delays payment of property taxes until the property is sold. Taxes are a lien on the property and must be paid along with 4% interest before the property can be transferred.
-Nevada / Tax 6.85 – 7.75 percent /0.1281 percent AMV/Sales Tax 6.85 – 7.75 percent /0.1281 percent AMV/ Food zero percent / Drugs zero percent / E No / I No
Nevada gets most of its revenue from gambling and sales taxes. The lowest sales tax counties, each at 6.85 percent, are – Elko, Esmeralda, Eureka, Humboldt, and Mineral.
Nevada taxes 35 percent of the assessed value of a single family home at the rate of $3.66 per $100 of assessed value. This calculates to a 0.01281 percent property tax rate.
Example: 35 percent of $200,000 home value = $70,000 taxable value at $3.66 x 700 [$70,000/$100 = [email protected]$3.66/$100] = $2,562 tax. The property tax amount of $2,562 is 0.01281% of $200,000.
Applying this calculation to any property value amount derives a property tax rate of 0.01281 percent. The formula may be viewed in the “Nevada Property Tax: Elements and Application” .pdf document, chapter 2, page 21 here.
In addition, those over 62 who meet income limits can receive a rebate of up to 90 percent of their property taxes.
-Texas / Sales Tax 6.5 – 8.5 percent / Property Tax Unfixed / Food zero percent / Drugs zero percent / E No / I No /
Texas state sales tax is 6.5 percent. However, designated local jurisdictions can charge an additional combined tax total amount of up to two percent more. The sales and use tax amounts actually charged vary by jurisdiction. For example, approximately half of the counties in Texas do not charge sales or use taxes.
Texas does not tax prescription drugs for humans or animals. Over-the-counter medications for humans are not taxable if labeled with a Food and Drug Administration panel printed with the drug facts. Non-prescription medications for animals are taxable. Wound care dressings, dietary supplements, medical devices and equipment, diabetic test strips, hypodermics and supplies for ileostomy and colostomy appliances are not taxable. Contact lenses, corrective eyeglasses, hearing aids, prosthetics and dental appliances are not taxable.
A detailed discussion of local sales and use tax charges is provided here.
Property tax is the largest tax assessed in Texas. Texas property tax rates are redetermined each year. The chief appraiser completes and provides an appraisal roll for each taxing unit. The taxing units then decide what services they will provide in the coming year and how much money they will need. Each taxing unit adopts a tax rate that will raise the needed tax dollars. The method used for determining the rates each year may be viewed here.
For homeowners 65 and older, $10,000 (in addition to regular $15,000 homestead exemption) of the property’s assessed value is exempt from school taxes and $3,000 is exempt from other local taxes. Once an over-65 homeowner qualifies for an over-65 homestead exemption for school taxes, that owner gets a tax ceiling for that home on school taxes. If the homeowner improves the home (other than normal repairs or maintenance), the tax ceiling is adjusted for the new additions. For details on the homestead exemption, here.
School district taxes are frozen for seniors (65 and older) at the level imposed on the residence the first year that the taxpayer qualified for the residence exemption. Counties, cities, towns, and junior college districts are permitted to establish a tax freeze on homesteads of those age 65 and older or disabled. For more information on exemptions, here.
-Washington /Sales Tax 6.5- 9.5 percent / 0.0111percent AMV / Food zero percent / Drugs zero percent / E 19 percent / I No
State sales tax is 6.5 percent. Local jurisdictions can charge an additional tax up to 3 percent. Local tax rates ranged from .005 to .030 percent per quarter in the 2011 tax year.
The average property tax rate in 2011 was $11.14/$1000 AMV and calculated to approximately 0.0111%. Details are available here.
Washington has the highest estate tax rate in the nation, however, it does also have a $2 million exemption.
-Florida / Sales Tax 6 – 9.5 percent / 0.0153 percent AMV / Food zero percent / Drugs zero percent / E No / I No
Florida state sales tax is 6 percent. Counties may charge an additional tax up to 3.5 percent.
Florida taxes 100 percent of the “just valuation” of all properties. Anyone who owns and lives on a real property on January 1 and makes it their permanent residence is eligible to receive a homestead exemption up to $50,000. The first $25,000 applies to all property taxes. The additional exemption up to $25,000, applies to the assessed value between $50,000 and $75,000 and only to non school taxes.
A tax calculation example using a “just valuation” amount is available here. The tax rate in the example is 0.0153 percent.