Anywhere you go in the U.S., you’ll still have to pay taxes. But choosing low-tax states to live in can free you from your tax burden a lot faster than in other parts of the country.
The nonprofit Tax Foundation created Tax Freedom Day as a way of easily comparing the relative amount of taxes that people pay to federal, state, and local revenue agencies. You can do the same simply by taking the total you pay in tax and dividing it by your income, telling you what percentage of the year you spend paying your fair share of taxes.
For the U.S. overall, Tax Freedom Day won’t come until this Thursday, April 18, and as we saw yesterday, some states will have to wait quite a while longer before they can declare independence from taxes. But in several states, Tax Freedom Day has already come and gone. Let’s look at the six least-taxed states in the U.S., along with a brief explanation of what makes their taxes so much lower than the rest of the country.
6. South Dakota, April 4
South Dakota makes the list for a couple of key reasons: It doesn’t have an individual income tax, and it doesn’t charge businesses on their corporate income, either. The state gets its income from property and sales taxes, but a state sales tax of 4% with local taxes of about 1.8% still doesn’t raise the total burden too far. Property taxes average less than $1,150 per person.
4 (tie). New Mexico, April 3
Where New Mexico stands out is in low property taxes, with an average of just $633 each year. By comparison, a 4.9% top income-tax rate and a 5.125% sales tax actually bring in a fairly substantial amount of tax, with the state’s per-person sales and excise tax liability among the top quarter of states across the nation. Corporate income-tax rates are also fairly high at 7.6%, although the rate is low enough to have enticed chipmaker Intel Corporation (NASDAQ:INTC) to move to the area in the early 1980s and gradually expand its production facilities over time.
4 (tie). South Carolina, April 3
South Carolina’s tax rates don’t seem all that attractive, with a 7% maximum individual income-tax rate and a 6% sales tax. But low property taxes of just over $1,000 on average help keep total taxes down, and a relatively small business presence leads to very low corporate-tax revenue.
3. Tennessee, April 2
Tennessee’s claim to tax fame is that its 6% income tax applies only to interest and dividend income, leaving wages untouched. Property taxes of less than $800 are also extremely low, although a sales tax of 7% helps the state raise needed revenue. A flat corporate-tax rate was probably one incentive that attracted shipping giant FedEx Corporation (NYSE:FDX) to locate its headquarters in Memphis.