Most people don’t pick their state based on tax rates. But as tax season approaches, it’s a good time to think about just how much you’re shelling out due to where you live.
Truth is, there is a lot of variety in state tax structures and figuring out which state has the lowest taxes overall is no easy task. We’ve turned for help to the Tax Foundation, which each year calculates an overall state ranking based on all kinds of taxes residents and businesses pay.
Individual income taxes get the highest weighting in overall rankings in the Tax Foundation’s 2015 State Business Tax Climate Index.
Not surprisingly, states with no income tax are ranked in the Tax Foundation’s top five. These include Florida, Alaska, Wyoming, Nevada and South Dakota. Texas, Washington, New Hampshire and Tennessee don’t tax income on wages, but tax some other kinds of income, so only some of them land in the top 10.
Most of the states high on this year’s list forego at least one major tax, such as sales tax or corporate taxes. These rankings factor in business taxes since the Tax Foundation believes they affect economic growth and overall prosperity in a state. Skipping a major tax isn’t necessarily a key to a top ranking, though. Thanks to their low rates, Indiana and Utah still make the top 10 even though they have all major types of taxes.
There are some shifts in rankings each year as states alter their tax structures.
In 2015, North Carolina was the most improved because it implemented tax reforms that included dropping its top income tax rate from 7.75 percent to 5.8 percent. It moved from No. 44 on the list to No. 16 — the biggest jump in the history of the index. Nebraska and West Virginia also improved.
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