The 10 Best & Worst States for Taxes

2.26.2021 | When corporations and individuals consider relocating, state taxes often factor into the decision. How do the states compare? To answer this question, the Tax Foundation publishes an annual State Business Tax Climate Index to rank states’ tax systems. The index uses five components: Individual Income Tax, Sales Tax, Corporate Income Tax, Property Tax, and Unemployment Insurance Tax. Each component includes numerous variables; all in all, there are 124 variables measured in the report. The foundation’s comprehensive research culminates in producing an index that ranks each state according to how well it structures its tax system. Following are the best and worst states of the 2021 index.

Best 10 States

1. Wyoming

2. South Dakota

3. Alaska

4. Florida

5. Montana

6. New Hampshire

7. Nevada

8. Utah

9. Indiana

10. North Carolina

What do they have in common? For many, it’s the absence of one or more of the major taxes. For example, Nevada, South Dakota, and Wyoming have no corporate or individual state income tax (though it’s noted that Nevada imposes gross receipts taxes.) Florida does not have individual income tax while New Hampshire and Montana have no sales tax.

Worst 10 States

1. Alabama

2. Louisiana

3. Vermont

4. Maryland

5. Arkansas

6. Minnesota

7. Connecticut

8. New York

9. California

10. New Jersey

Complex, nonneutral taxes with comparatively high rates are detrimental and common factors among the bottom 10 states. The state with the lowest rank, New Jersey, has some of the highest property taxes in the nation, the second highest-rate corporate and individual income taxes, and levies an inheritance tax. In fact, it has some of the country’s worst-structured individual income taxes.

Do a Deeper Dive

To further illustrate the variances in tax climates, the Tax Foundation offers interactive maps that compare specific tax categories such as corporate, property, and sales taxes. Additionally, you can click any state to view individual ranks and scores.

See the Tax Foundation’s full study for additional information.