Fun with Grok.
The "best" and "worst" tax-friendly states depend slightly on the metric—whether you're looking at actual taxes paid by a typical household (effective burden) or the structure of the tax system (competitiveness, simplicity, and neutrality, which affects long-term economic appeal). Both perspectives draw from 2025–2026 data and consistently highlight the same groups of states.
Best Tax-Friendly States (Lowest Taxes / Most Competitive)These states generally impose the lowest overall state and local taxes on residents and/or have the most pro-growth tax structures. Top states by effective total tax rate on a median U.S. household (WalletHub 2026 analysis, assuming ~$81k income, $333k home, etc.; national average ~11%):
- Alaska — 6.94% effective rate (~$5,634/year) — No state income tax, no statewide sales tax.
- Delaware — 7.19% (~$5,842).
- Wyoming — 7.58% (~$6,156).
- Idaho — 7.65%.
- Montana — 7.88%.6–10 include South Carolina, Colorado, Nevada, and Florida (all under 9%).
wallethub.com
Top states by overall tax burden as % of personal income (WalletHub data): Alaska (~4.9%), Wyoming, New Hampshire, Tennessee, Florida.
Top states by Tax Foundation’s 2026 State Tax Competitiveness Index (structure as of July 2025):
- Wyoming
- South Dakota
- New Hampshire
- Alaska
- Florida(Also strong: Montana, Texas, Tennessee, Idaho, Indiana).
taxfoundation.org
What makes them tax-friendly?
- No (or very low) state income tax — This is the biggest factor. Nine states have none on wages: Alaska, Florida, Nevada, New Hampshire (fully phased out interest/dividends tax by 2025), South Dakota, Tennessee, Texas, Washington, and Wyoming. Income tax is often the largest personal tax and is progressive, so it hits higher earners hardest. These states rely instead on sales taxes, property taxes, tourism, oil/minerals (e.g., Alaska’s oil revenue even pays residents a Permanent Fund Dividend), or other sources.
- Low or no statewide sales tax in some (Alaska, New Hampshire, Montana, Delaware).
- Moderate property taxes and business-friendly rules (flat/low rates, few brackets, broad bases that avoid double-taxing).
- Result: Residents in the best states can pay less than half what people in the worst states pay on the same income/house/car.
wallethub.com
Worst Tax-Friendly States (Highest Taxes / Least Competitive)These have the highest effective burdens and most complex/punitive structures. Bottom states by effective total tax rate (WalletHub taxpayer ranking):
- Illinois (16.87%, ~$13,699/year — worst overall)
- New York (14.95%)
- Connecticut (14.58%)
- Pennsylvania, New Jersey, Kansas, Nebraska, Iowa, Ohio, Texas (high property/sales despite no income tax).
wallethub.com
Highest tax burden as % of personal income: Hawaii (13.92%), New York (13.56%), Vermont, California (~11%), Maine.
wallethub.com
Worst in Tax Foundation Competitiveness Index: 50. New York49. New Jersey48. California(Also poor: Connecticut, Maryland, Washington, Minnesota, Massachusetts, Vermont, Hawaii).
taxfoundation.org
What makes them unfriendly?
- High progressive income taxes — Top rates of 8–13.3% (California, Hawaii, New York, New Jersey, etc.) plus many brackets, phase-outs, and surtaxes. This is the dominant driver of high burdens.
- High property taxes (New Jersey, Illinois, New Hampshire, Vermont often rank worst; effective rates can exceed 2% of home value).
- High sales/excise taxes or broad bases that tax groceries, services, or business inputs (Hawaii, Louisiana).
- Complex rules (e.g., taxing capital gains at ordinary rates, estate/inheritance taxes, poor conformity with federal tax code) that increase compliance costs and discourage business/investment.
taxfoundation.org
Quick Notes
- No-income-tax states aren’t automatically best overall — Texas and Washington rank lower because of very high property or sales taxes.
- Rankings are for a “median” household; your personal situation (income level, homeownership, retirement status, family size) matters a lot. High earners care more about income tax; retirees about property/sales; businesses about the Competitiveness Index.
- Data reflects 2025–2026 rates and burdens (U.S. Census, Tax Foundation, etc.). Taxes can change with legislation.
If you’re considering a move, factor in cost of living, services received, and your specific tax situation (e.g., via a tax calculator). The no-income-tax Sun Belt and Mountain West states dominate “best” lists for most people.
Source:
www.consumeraffairs.com