How States Tax Goods Differently
Location, location, location is the oldest mantra in real estate — but the same concept applies to taxes, too. America’s most tax-happy states hit their highest earners with double-digit income tax rates — 13.3% in California, 11% in Hawaii, 10.9% in New York and 10.75% in New Jersey and Washington D.C., with Oregon and Minnesota not far behind in the high nines.
Write Off Your Mileage? The IRS Expands the Deduction for Fuel Costs in 2023
Find Out: If Your Credit Score Is Under 600, Make These 3 Moves ASAP
On the other side of the spectrum are the nine states that don’t require their residents to pay any income tax at all.
But it’s not just your earnings. Where you live also determines the tax you’ll pay for the things you buy, whether you own them for decades or just a few minutes.
Here’s a look at how America’s 50 states tax or don’t tax the goods that people buy every day.
There Are Few Places To Hide From Sales Taxes
It’s hard to imagine that any tax directly impacts the daily lives of more Americans than the hodge-podge of sales taxes that governments levy throughout the country. They increase the cost of just about everything that just about everyone buys, from cars and comic books to sodas and snowmobiles.
As with all taxes, your state determines your rate.
Five states — Alaska, Delaware, Montana, New Hampshire and Oregon — don’t levy any sales tax at all. But according to the Tax Foundation, that doesn’t let residents of all those states off the hook entirely.
Municipalities Can and Often Do Pile On
Local governments levy additional sales taxes in 38 states, and in some cases, these municipal taxes can rival or even exceed the state rate. For example, although Alaska has no statewide sales tax, the average local rate is 1.76% — but it can go all the way up to 7.5%, one of the highest in the country.
For an idea of just how big a role local sales taxes play, consider that among the states with the five highest state sales tax rates — California (7.25%), Indiana (7%), Mississippi (7%), Rhode Island (7%) and Tennessee (7%) — only one has a spot among the five states with the highest average combined state and local rates, which are:
- Louisiana: 9.55%
- Tennessee: 9.548%
- Arkansas: 9.46%
- Alabama: 9.25%
- Oklahoma: 8.98%
Take Our Poll: How Much of a Tax Refund Do You Expect in 2023?
Property Taxes Can Be a Minor Annoyance or a Crushing Burden
Local governments get most of their revenue by taxing the biggest thing that most people will ever buy — their homes. Property taxes fund schools, police departments, roads, fire departments and medical and emergency services. When all is said and done, property taxes account for more than 70% of local tax collections, according to the Tax Foundation.
But just like sales taxes, your property tax burden will vary considerably depending on where you live. In fact, many people make decisions about where to live and retire with property taxes in the front of their minds.
For context as to just how wide the range is depending on location, consider that six American counties have median property tax burdens of less than $200 per year:
- Alaska: Northwest Arctic Borough and the Kusilvak Census Area
- Louisiana: Avoyelles, East Carroll, and Madison
- Alabama: Choctaw
On the other side of the coin are the eight counties with five-figure median property tax bills greater than $10,000:
- New Jersey: Bergen, Essex and Union
- New York: Nassau, New York, Rockland and Westchester
- Virginia: Falls Church
The Most Expensive State Charges Over 8 Times More Than the Cheapest
According to The Motley Fool, these are the five states with the lowest property tax rates:
- Utah: 0.57%
- Nevada: 0.55%
- Colorado: 0.52%
- Alabama: 0.43%
- Hawaii: 0.29%
Residents of these five states pay the highest property taxes in the nation:
- Texas: 1.9%
- New Hampshire: 2.09%
- Connecticut: 2.16%
- Illinois: 2.29%
- New Jersey: 2.46%
You Pay For Infrastructure Every Time You Put Gas in Your Car
When the record-high gas inflation of 2022 reached its zenith in June, motorists noticed that they paid much more or less to fill up depending on where the gas station was located. The national average price per gallon peaked at just above $5, but it never climbed that high in most of the South. But in California, drivers in some areas were paying north of $7 a gallon when prices were highest.
Many variables influence the price of gas, but few are more consequential than the excise taxes that states levy on the sale of fuel.
Revenue from gas taxes funds the building and maintenance of roads, bridges and other infrastructure. According to the Energy Information Administration (EIA), the federal government levies its own tax of 18.4 cents per gallon — you pay that amount no matter where you fill up. But states also pile on with their own gas taxes, which are typically much higher. The average is 31.67 cents per gallon, but that number can vary wildly from state to state.
According to IGEN Tax and Reporting, Pennsylvania and California levy the highest gas taxes in the country at 61 cents and 54 cents, respectively. Conversely, Hawaii and Alaska add just 16 cents and 9 cents to the federal tab.
More From GOBankingRates