The 10 Best Cities With the Lowest Tax Rates

tax rates
By Ben Hartwig
26 February, 2020

There are plenty of reasons why relocating to a new city makes a whole lot of sense.

A new job, retirement, a housing opportunity, or the simple fact of needing a change in scenery are some of the reasons to move. However, there’s one pretty good reason why a lot of Americans choose to switch zip codes: taxes. Having to deal with state income tax, property tax, or sales tax on top of a mortgage and other expenses is what drives people to consider making a move to a tax-friendly city.

With all the other mounting expenses, paying the taxman or avoiding fees altogether is a sound strategy to keep finances in check. This article aims to assist folks looking for a low-tax city. It explores US cities with the lowest taxes popular with those coming from expensive states.

Ranking Method

The methodology used to find the cities with the lowest possible taxes comes from a study made by SmartAsset. The data points used came from the United States Census Bureau, payroll-taxes.com, taxfoundation.org, Aalara.com, and various public records databases.

The ranking method:

  • The study’s author collected tax data for US cities with populations of at least 250,000 and calculated the expected taxes for a standard income-earning resident.
  • Considerations were made for three of the most impactful taxes paid by middle-class Americans, namely sales taxes, income taxes, and property taxes.
  • The study’s author found the cities with the lowest taxes by calculating taxes for a hypothetical taxpayer earning an annual income of $45,000 and owns a house worth $270,000. 
  • Income taxes were calculated by removing the standard deduction for each state at the specified levels of income and applying each state’s tax rate. The same method was used for cities that have their income tax (New York) or those located in counties that have an income tax.
  • The methodology works on the assumption that an average taxpayer would spend 70 percent of his or her disposable income on taxable goods.

Top Ten Cities With the Lowest Taxes

Based on the data, the “no-income-tax” state of Florida has the most number of low-tax cities with three. Florida has lower sales taxes compared to other no-income-tax states. Cities in the Midwest didn’t fare too well, and not a single one landed in the top third of the list.

1. Anchorage, Alaska.

  • Income Tax: $0.
  • Sales Tax: $0.
  • Property Tax: $3,675.
  • Total State and Local Taxes: $3,675.
  • Percent of Pre-tax Income: 8.2%.
Alaska

The northernmost city of Anchorage has the lowest taxes of all towns in the US. The city has zero sales and income taxes. The effective property taxes are more moderate than other major cities in the lower 48 states, plus veterans and seniors are exempt from paying taxes on the first $150,000 of their home’s value. Alaska is one big taxpayer-friendly state, having policies such as the “Permanent Fund Dividend” that sends out annual payments to residents. To be eligible, an individual must have lived in Alaska permanently for one year. The dividend’s amount varies each year, from $900 to over $2,000.

2. Tampa, Florida.

  • Income Tax: $ 0.
  • Sales Tax: $ 1,802.
  • Property Tax: $ 2,668.
  • Total State and Local Taxes: $ 4,470.
  • Percent of Pre-tax Income: 9.9%.

Tampa sits at number two because its effective real estate taxes are the lowest of all major Florida cities. Another factor is that Florida doesn’t collect income tax, and the state sales tax is 6 percent lower than other no-income-tax states. Florida is well-represented in this study, with three big cities making the top ten, meaning the state has low taxes across the board.

3. Jacksonville, Florida.

  • Income Tax: $ 0.
  • Sales Tax: $ 1,799.
  • Property Tax: $ 2,735.
  • Total State and Local Taxes: $ 4,534.
  • Percent of Pre-tax Income: 10.1%.

Jacksonville is the largest city in Florida, which makes it the most affordable big city in the nation. Florida has always been a magnet for retirement because of the weather, beaches, golf, and other activities. Those coming from a high tax big city looking to move to another big city should consider Jacksonville. The gravy on top when moving to any top three cities in the Sunshine State is that there’s no state inheritance tax.

4. Henderson, Nevada.

  • Income Tax: $ 0.
  • Sales Tax: $ 2,095.
  • Property Tax: $ 2,494.
  • Total State and Local Taxes: $ 4,589.
  • Percent of Pre-tax Income: 10.2%.

There’s a reason why the residents of Henderson are fortunate enough not to pay income taxes to the city government, county, and state: Nevada is home to Las Vegas, and the state rakes in billions in revenue. Nevada topped $12 billion in casino and gaming revenue in 2019 alone. Henderson is only 16 miles from the entertainment capital of the world, and the revenue spillover might be the reason why the city can offer one of the lowest taxes in the US.

5. Honolulu, Hawaii.

  • Income Tax: $ 2,712.
  • Sales Tax: $ 1,132.
  • Property Tax: $ 798.
  • Total State and Local Taxes: $ 4,642.
  • Percent of Pre-tax Income: 10.3%.
Honolulu

How did Honolulu break the top five when residents pay income and sales taxes? The answer is simple: Hawaii is a state that collects taxes. The reason why Honolulu bested all the other cities because the real estate taxes are so low. Compared to other major cities that receive around 1 percent of a home’s value in annual property taxes, Honolulu only collects less than a third of a percent.

6. Seattle, Washington.

  • Income Tax: $ 0.
  • Sales Tax: $ 2,466.
  • Property Tax: $ 2,358.
  • Total State and Local Taxes: $ 4,824.
  • Percent of Pre-tax Income: 10.7%.

Seattle has one of the highest sales tax in the entire country, amounting to 9.5 percent state and local taxes. The city makes up for it by not imposing an income tax burden on its residents, and all the money lost in the cash register is recouped on tax day. There have been proposals to start collecting income tax in the Evergreen State, but these efforts have been rebuffed.

7. Colorado Springs, Colorado.

  • Income Tax: $ 1,796.
  • Sales Tax: $ 1,723.
  • Property Tax: $ 1,380.
  • Total State and Local Taxes: $ 4,900.
  • Percent of Pre-tax Income: 10.9%.

Colorado Springs in El Paso County is a beautiful city ideal for families. The city collects taxes, but local and state governments offer tax breaks, support, and other incentives to parents raising a family. The Child Tax Credit is one such incentive. State tax credits vary between five and thirty percent of the comparable federal tax credit. For the hypothetical taxpayer earning $45,000 annually, the credit is worth around $150 per year for each child six years or younger.

8. Las Vegas, Nevada.

  • Income Tax: $ 0.
  • Sales Tax: $ 2,075.
  • Property Tax: $ 2,849.
  • Total State and Local Taxes: $ 4,924.
  • Percent of Pre-tax Income: 10.9%
Las Vegas

If Henderson city made it, Las Vegas should be on this list too, and for an excellent reason. The Vegas Strip alone made $6.587 billion in 2019. While Sin City is an expensive place for tourists, residents enjoy zero income tax, 1 percent effective property taxes (home value), and an 8.1 percent sales tax rate. Moving here could save tax-averse people much money, assuming they don’t gamble it all.

9. Mesa, Arizona.

  • Income Tax: $ 1,126.
  • Sales Tax: $ 2,053.
  • Property Tax: $ 1,887.
  • Total State and Local Taxes: $ 5,066.
  • Percent of Pre-tax Income: 11.3%.

Mesa is on the list because Arizona has some of the best tax incentives for the middle class. While the state collects a top marginal tax rate of 4.54 percent, it only applies to taxpayers who make over $150,000 a year. Anyone who earns less than $50,000 per year gets a top marginal rate of only 3.36 percent and an effective rate that’s closer to 3 percent.

10. Miami, Florida.

  • Income Tax: $ 0.
  • Sales Tax: $ 1,770.
  • Property Tax: $ 3,328.
  • Total State and Local Taxes: $ 5,098.
  • Percent of Pre-tax Income: 11.3%.

Miami is the third Florida city on the list, in large part due to the state collecting no income tax. The city also has one of the lowest sales tax rates at 7 percent, which is lower than in most major cities. People who love the sun, sand, and beach but hate paying taxes should consider moving to Miami.

Why Choose Low Tax Cities?

low taxes

Data from the Tax Foundation shows that all US households have an average effective federal income tax rate of 18.1 percent. The figure is lower than the top marginal rate that a majority of year-round workers pay. Individuals with an adjusted gross income of $36,901 pay at least 25 percent. However, this disparity in tax numbers doesn’t show the whole picture.

Typical taxpayers carry the burden of state and local taxes on income, plus sales tax and real estate fees. These charges add up, making a financial sucker punch to the gut of taxpayers. Choosing a city that offers lower taxes can help households put the money saved on big-ticket items, such as purchasing a home or retirement.

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