What State Has the Lowest Overall Taxes for Homesteaders?

On my journey to find a homestead, it shouldn’t be a surprise that one of my criteria is to live in one of the states that has the lowest overall taxes.

Even though the number of states on my purchase list is getting shorter, there are still too many to start a property search.

I can reduce my list and narrow my search by looking at state and local tax rates.

Overall Taxes

Here’s where it gets confusing to figure out the state with the lowest overall taxes.

I don’t think it’s a big secret that it’s difficult to calculate your overall tax rate.

Especially at the state level because of the county and local taxes.

There are so many variables that two people living in the same county can have a much different tax bill depending on their school district and town property taxes.

I found it almost impossible to figure out my state tax bill because of all the variables.

Enter Research Companies

To compare apples to apples, we’ll need to make some assumptions; I’ll let the research companies make the assumptions, and I’ll report them to you.

The research company I’m going to use is called Tax Foundation. You can visit their website to find out more about this Foundation.

The Foundation uses three general categories to compare the overall tax rates and state rankings.

The categories are:

Individual Income Tax
Property Tax; and
Sales Tax

Since there are many tax variables to consider, I don’t expect the reported percentages to be exactly what I will have to pay. But it should give me a better idea of what states will allow me to keep a larger share of my money legally.

Let’s take a look at the maps.

Income Taxes

The first map shows you the state and local income taxes per capita.

Per capita is the total amount of tax collected by the state divided by the number of people in the state.

You can click the map to make it easier to view.

Per capita provides an overall tax burden; of course, it’s an average rate and doesn’t consider your tax bracket or deductions.

The gray-colored states don’t collect state taxes. On the map, a higher rank means lower taxes. Of the states remaining on my list, the three lowest are:

Washington’s $0/person ranked tied for 50th.
Tennessee $37/person ranked 43rd.
Idaho’s $818/person ranked 33rd.

Property Taxes

The map below shows the effective property taxes on owner-occupied housing. In other words, it excludes businesses, rental houses, vacation homes, etc.

It reports property taxes paid by people that own and live in their primary home.

In this map, the darker-colored states have a higher tax rate. The value shown is the property tax divided by the house’s value. Again, the higher the ranking, the lower the tax rate.

From my list, the three lowest are:

West Virginia 0.53% ranked 46th
Arkansas 0.64% ranked 41st
Idaho’s 0.75% ranked 35th

Many of the states on my list are very close to Idaho and ranked in the lower 2/5th of states.

Sales Tax

The map below shows the sales tax of each state. Again, this is a difficult category because some states charge sales tax on different items.

I don’t plan on buying many high-value items or spending much money, so this will be one of the lower-priority categories.

The darker the color, the higher the tax. Of the states on my list, the three lowest are:

Oregon’s no sales tax ranked tied for 50th.
Kentucky 6% ranked 37th
Idaho 6.03% ranked 36th

Again, the tax rate of many states are very close to each other, and if large expenditures are expected, there is little difference.

Consensus?

Of the states on my list, Idaho ranks the lowest in all three categories.

But moving west is the least likely of my plans. I might have to reconsider, though.

Then I Found It!

There might be some published information to determine which state has the lowest overall taxes.

Have you heard of Tax Freedom Day?

It’s the day of the year that a person must work before earning enough money to pay all of their tax burden, including federal, state, and local taxes.

A better definition is below. Again, you can click the image to make it bigger.

The table below shows the Tax Freedom day for all of the states.

The average tax freedom day for the U.S. is April 24th, so the average American has to work 124 days before any of this labor is his own.

That’s 34% of the year.

Take a look at the table below to see where your state ranks.

The five states that have the lowest overall taxes are:

Mississippi
Tennessee
Lousiana
Alabama; and
South Dakota

So even though Idaho was listed as one of the least taxed states for income, property, and sales tax, the state ranks 16th in the nation for tax freedom. But that is still nine days earlier than the national average.

The reasons for the discrepancy must be due to property assessment, federal income bracket (for most people in the state), and spending habits.

Where Do My Preferred States Fall?

Here’s how the states on my list rank according to Tax Freedom Day. Here lower numbers are good.

Tennessee – 2nd
Oregon – 37th
Washington – 40th
Idaho – 16th
West Virginia – 8th
North Carolina – 19th
Arkansas – 12th
Kentucky – 8th
Missouri – 12th

How about my current state?

New York is ranked 48th, and tax freedom day is May 11th! Holy crap!

Wrap Up

Remember, all these data are estimates, and you should do your own research. These data are for my information.

Below is a table that shows the nine states still on my list and my current state, New York. The numbers below are how the state ranks relative to the other 49.

Low numbers are good in the table below; a value of 1 means the state has the lowest tax, and 50 the highest.

State	TFD Ranking	Income Tax Ranking	Property Tax Ranking	Sales Tax Ranking
Tennessee	2	7	17	50
Oregon	37	32	30	1
Washington	40	1	24	45
Idaho	16	23	15	14
West Virginia	8	26	4	16
North Carolina	19	15	20	25
Arkansas	12	29	9	49
Kentucky	8	30	8	13
Missouri	12	28	28	36
New York	48	50	36	41

To make any sense out of these numbers, other than the obvious fact that taxes are high in New York, you need to make some estimates of your long-term income, how much land you want to purchase, the value of the house, and if you’re building your own home or purchasing a high priced item or two.

Sales tax exemption on animal feed varies state by state, so considerations must be taken into account for that, too, if you expect to purchase a lot of feed (it also depends on if you run a farm business or not).

In a future post, I’ll discuss my own story and which one or two states make more sense to me.

Which State Has the Lowest Overall Taxes?

Well, that depends.

If you’re looking to develop a homestead but are unsure where you want to build it, I think the Tax Free Day is a good beginning point.

From there, you need to think about your income, the assessed value of your homestead, and if you’re going to buy a lot of building materials or large toys (tractors, 4-wheelers, trucks, or anything else costing thousands of dollars) and decide if the costs of living in a particular state are worth your perceived value of the land.