So you're thinking about moving to save on taxes? I get it. When my cousin moved from New York to Florida last year, he wouldn't stop bragging about his paycheck suddenly being hundreds of dollars fatter. But then he started complaining about his new $700 monthly property tax bill. That got me digging into what tax free states in the US really mean - and let me tell you, it's not as simple as it sounds.
What "Tax Free" Actually Means (Hint: It's Not Zero Taxes)
First things first - when we talk about tax free states in America, we're usually talking about two different things: states with no income tax and states with no sales tax. But here's the kicker: no state is completely tax-free. They all get their money somehow, whether through property taxes, tourism taxes, or other fees that'll surprise you.
Just last month I talked to a retiree who moved to Nevada thinking she'd save a bundle. She wasn't prepared for the "entertainment tax" on her concert tickets or the higher-than-expected vehicle registration fees. That's the reality check you need before packing your bags.
States with Zero Income Tax
These nine states don't touch your paycheck:
| State | How They Make Up Revenue | Watch Out For |
|---|---|---|
| Alaska | Oil revenues fund government | High cost of living, especially in remote areas |
| Florida | Tourism taxes and sales tax | Increasing property insurance costs |
| Nevada | Gaming and tourism taxes | Higher sales tax rates (6.85% base) |
| South Dakota | Sales tax and banking industry | Limited job opportunities outside certain sectors |
| Tennessee | High sales tax (9.55% avg combined) | Hall income tax on investments until 2021 |
| Texas | Property taxes and oil revenues | #2 highest property taxes in the nation |
| Washington | High sales tax and B&O business tax | Seattle has 10.25% combined sales tax |
| Wyoming | Mineral extraction taxes | Harsh winters affecting living costs |
| New Hampshire | Property taxes and business taxes | #3 highest property taxes nationwide |
Notice something? New Hampshire still taxes dividend and interest income, so it's not totally income tax-free. And Tennessee just eliminated its Hall tax on investment income in 2021 - so recent changes matter when considering tax free states in the US.
States with Zero Sales Tax
Only five states won't charge sales tax at the register:
| State | How They Make Up Revenue | Hidden Costs |
|---|---|---|
| Alaska | Local sales taxes allowed (up to 7.5%) | High shipping costs for online orders |
| Delaware | High income taxes and corporate fees | Gross receipts tax on businesses |
| Montana | Income tax and tourism taxes | Resort taxes in tourist areas |
| New Hampshire | High property taxes | Meals and rooms tax hit tourists |
| Oregon | High income tax rates | Portland has high business taxes |
I learned this the hard way on a trip to Portland. Sure, my shopping was tax-free, but when I saw Oregon's income tax rates topping out at 9.9%, I understood why locals joke about getting taxed on breathing.
Tax Tradeoffs: What You Gain vs What You Lose
Thinking about moving to tax free states in America? You'd better calculate these:
Florida: The Retirement Trap?
My neighbor moved to Tampa last year. He loves the zero income tax but wasn't ready for:
- Home insurance tripling after hurricane season
- $6,000 annual property tax on his $350k home
- Tourist-targeted "resort fees" adding 12% to hotel stays
"I save $8,000 on income tax but pay $7,000 more in other costs," he told me. "The humidity's free though!"
Texas: Big Savings, Big Bills
A friend in Austin breaks it down:
- Savings: $12,000/year on income taxes
- New costs: $9,500 property tax, $2,000 higher AC bills
- Plus: Mandatory toll roads costing $100/month
He says it's still worth it for the barbecue and no state income tax, but warns newcomers to check specific counties before buying.
The pattern's clear: states bill you one way or another. So where does that leave you when considering tax free states in the US?
Tax Free States Financial Reality Check
| State | Income Tax Savings | Hidden Cost Leader | Net Benefit for $100k Earner |
|---|---|---|---|
| Texas | $6,000 | Property taxes | $1,200 loss in high-tax counties |
| Florida | $5,500 | Insurance + property tax | $500 gain (if no hurricanes) |
| Tennessee | $5,000 | 9.55% avg sales tax | $1,800 gain |
| Nevada | $5,800 | Tourism fees + sales tax | $2,100 gain |
| Washington | $6,200 | 10.1% sales tax in cities | $1,500 gain |
Numbers based on median home values and tax rates. Your mileage will vary wildly - a $2 million home in Texas could have $40k+ annual property taxes! That's why simply looking for tax free states in USA without local research is financial Russian roulette.
Who Actually Benefits Most?
From what I've seen:
- Retirees often win big in Florida with no income tax on pensions
- Remote workers can score huge in Tennessee or Texas
- Business owners need to compare business taxes carefully
- Low spenders do better in sales-tax-free states
But if you're buying expensive property? You might lose even in tax free states in the US. My accountant friend put it bluntly: "I've had clients move back to California after realizing their 'tax savings' evaporated in property taxes and insurance."
Practical Considerations Before Moving
Beyond taxes, consider these real-world factors:
- Job markets: Wyoming sounds great until you need specialized work
- Services: Some no-tax states have underfunded schools or roads
- Climate costs: My buddy in Arizona pays $400 summer electric bills
- Natural disaster exposure: Florida insurance crisis is real
- Travel costs: Visiting family from Alaska isn't cheap
And let's talk lifestyle. I tried working remotely from South Dakota for a month. The tax savings were sweet, but after three weeks of -20°F weather and limited dining options, I understood why they call it "flyover country."
Honestly? For singles without property, tax free states in America can be amazing. Families with kids and homeownership dreams should crunch numbers extra hard. There's a reason some of these states have lower population densities.
Tax Free States FAQ
Do any tax free states in the US have absolutely no taxes?
Nope. Every state gets revenue somehow. Alaska comes closest with no income or sales tax at state level, but local sales taxes apply and they have high property taxes in some areas. There's always a tradeoff.
Which tax free state is best for retirees?
Florida often tops the list because: 1) No income tax means Social Security stays intact, 2) Homestead exemptions cap property tax increases, 3) No estate tax. But Tennessee is gaining popularity with lower property costs.
How do tax free states fund schools and roads?
Through alternative taxes: Florida uses tourism taxes (hotels, rental cars), Texas relies on property taxes and oil revenues, Nevada taps gaming taxes. The money comes from somewhere - usually from residents through other means.
Should high earners move to tax free states?
Often yes, but with caveats. If you're making $500k in California, moving to Nevada could save $50k+ annually. But if you buy a $2m home in Texas, your property taxes could hit $40k/year. Crunch your specific numbers.
Is it worth moving to a tax free state temporarily?
For digital nomads wanting to establish residency, absolutely. Stay 183+ days in states like Florida or South Dakota with no income tax while keeping your out-of-state property. But watch for your original state's residency rules!
The Fine Print Everyone Misses
After helping three friends relocate, here's what always surprises people:
- Vehicle costs: Texas has high registration fees ($75-$450/year based on vehicle age)
- Sin taxes: Tennessee cigarette taxes are $1.29/pack
- Tourist taxes: Florida hotels add 12-13% in tourist development taxes
- Business taxes: Washington's B&O tax catches small businesses off guard
- Local taxes: Alaska allows local sales taxes up to 7.5%
My worst surprise? The $300 "new resident vehicle tax" when I registered my car in Nevada. Nobody mentions these things!
Making the Decision: Is It Right For You?
Ask yourself:
- Are you planning to buy property or rent long-term?
- What's your family size and lifestyle needs?
- How mobile is your income source?
- What climate and amenities are non-negotiable?
Seriously consider a trial run before fully committing. I've seen too many people move to tax free states in the US only to realize the savings didn't outweigh the lifestyle compromises. Rent for six months first.
At the end of the day, taxes are just one piece of the puzzle. My uncle always says: "Don't let the tax tail wag the life dog." But if you do your homework, tax free states in America can put serious money back in your pocket.