Tax-Free Dream Or Costly Nightmare? The Truth About Living In States With No Income Tax

Ditching income taxes sounds like a dream for many Americans, and the nine states offering that see their fair share of interest.

Although you may initially keep more of your paycheck, the story doesn't end there. These states often make up for lost revenue by increasing other costs, which are climbing fast.

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Some states without an income tax have higher housing costs, utilities or other expenses. Property taxes may be substantial, especially in areas with high housing costs, and sales taxes can add up quickly on everyday purchases like groceries.

While the lack of income tax might seem like a win, it's important to consider the overall financial picture before moving to a no-income-tax state. The states with no income taxes are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

Realtor.com data shows nationwide listing prices rose, on average, 46.6% between May 2019 and May 2024. Two-thirds of no-income-tax states saw home prices skyrocket even higher over the past five years. Wyoming takes the crown with an 82% increase, followed by New Hampshire, South Dakota and Tennessee with jumps of 76.5%, 65% and 52.7%, respectively.

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Even states with slower price growth like Texas, Washington and Florida (between 26% and 36%) might leave you feeling nickeled and dimed by other costs. Home insurance costs soared in Texas and Florida because of the risk of property damage from climate-related events.

"The emigration away from high-tax states like California, Illinois and New York and into no-tax states is driving up property values due to increased demand for housing said Miles Romney, assistant professor in the Department of Accounting at Florida State University's College of Business. "But the supply is relatively constrained."

How Low-Tax States Stack Up

State	State sales tax	Property tax effective rate	Average property tax	Average annual home insurance	Worth noting
Alaska	0%	0.95%	$3,947	$1,116	Local sales tax can be as high as 7.5%
Florida	6%	0.76%	$4,476	$10,996	Costliest home insurance
Nevada	6.85%	0.48%	$2,660	$1,224	Gambling provides significant revenue
New Hampshire	0%	1.25%	$7,172	$1,225	State collects tax on dividends and interest
South Dakota	4.5%	1.01%	$3,408	$2,562	State collects sales tax on purchases that are often exempt elsewhere
Tennessee	7%	0.44%	$1,695	$2,470	State collects sales tax on purchases that are often exempt elsewhere
Texas	6.25%	1.2%	$4,464	$4,456	Oil industry provides the state's significant revenue
Washington	6.5%	0.8%	$5,640	$1,437	State charges 7% on capital gains over $250,000
Wyoming	4%	0.53%	$2,930	$2,159	State charges sales tax on some personal care items like feminine hygiene and diapers
National	4%-7%	1.1%	$2,690	$2,377

Source: Realtor.com

"States with no income taxes may not be as affordable [as] one would think for a couple of different reasons," Realtor.com Senior Economist Ralph McLaughlin said. "First, wealthy households may seek to establish residency in such states in order to avoid paying income tax. This would mean the state would have a wealthier population base, and a wealthier base tends to be correlated with higher home prices. Second, states that have no income tax will need to make up for lost revenue in other ways, which may be from a combination of higher property and sales taxes."

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