The Tax Seesaw
State and local governments need revenue to fund schools, roads, police, and public services. The three main sources are property taxes, income taxes, and sales taxes. Most states lean on two of these three, and the balance they strike directly affects your total tax burden depending on your income level, home value, and spending patterns.
The general pattern: states with no income tax tend to have higher property taxes (Texas, New Hampshire), while states with high income taxes often have lower property taxes (New York has high rates on both, making it an expensive outlier). Understanding this trade-off is essential for making informed decisions about where to live, especially if you are relocating across state lines.
No Income Tax States
Nine states have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Of these, Texas and New Hampshire are notable for having among the highest effective property tax rates in the country. Texas homeowners pay an average effective rate near 1.7%, while New Hampshire averages roughly 2.0%. The absence of income tax savings is partially offset by these higher property tax bills.
Florida, Nevada, and Wyoming manage to keep both income taxes and property taxes relatively low by relying heavily on sales taxes and, in some cases, tourism and natural resource revenues. These states often offer the best overall tax deal for homeowners with moderate incomes.
High Income Tax, Low Property Tax States
Hawaii has the lowest effective property tax rate (0.27%) but levies income tax rates up to 11%. California combines relatively moderate property taxes (averaging around 0.7% thanks to Proposition 13) with the highest marginal income tax rate in the nation at 13.3%. For high earners in these states, the income tax burden far exceeds what they save on property taxes.
Finding Your Optimal State
The best state for you depends on your financial profile. If you have a high income but a modest home, low-property-tax states may save you more than no-income-tax states. If you have a high-value home but moderate income, no-income-tax states with affordable property taxes (like Florida) are attractive. Retirees often benefit most from states with no income tax and senior property tax exemptions.
The Total Picture
Do not optimize for a single tax. Calculate your total state and local tax burden including income, property, and sales taxes before deciding where to live. Online tax burden calculators from organizations like the Tax Foundation can estimate your total state and local tax bill based on your specific income, home value, and spending profile. Combine that analysis with our property tax data to make a fully informed decision.