As taxpayers and businesses make decisions about where to live and where to set up shop, state tax codes are often a major consideration. But given the complexity of state laws, comparing those differences isn’t always so easy.
A new ranking of states’ tax competitiveness by the Tax Foundation, a think tank, aims to simplify this task by providing a comprehensive comparison of states’ tax policies and ranking them accordingly.
The rankings are based on over 150 variables within five categories: individual income taxes; corporate taxes; sales, use, and excise taxes; property and wealth taxes; and unemployment insurance taxes.
While that adds up to a lot of moving parts, there are a few common denominators among tax-friendly states. The four top-ranked states—and six of the top 10—have no individual income tax. The lack of an income tax doesn’t necessarily make a state more affordable, though. States that don’t levy income taxes have to make up those revenues in other areas, which many do with higher property taxes, for instance.
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The states that rank highest in the Tax Foundation’s analysis tend to combine low (or nonexistent) income taxes with relatively low sales taxes and property taxes.
“The absence of a major tax is a common factor among many of the top 10 states,” the Tax Foundation said in a report. “Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax or the sales tax.”
The three highest-ranking states — Wyoming, South Dakota and Alaska, respectively — all are largely rural and sparsely populated, attributes that contribute to their tax-friendliness. These states have less need for complex infrastructure such as mass transit systems, and lawmakers in these states are motivated to keep taxes low in order to attract economic activity, investment and residents.
In addition to no income taxes, South Dakota and Wyoming have no corporate income taxes, while Alaska has no state sales tax.
States rich in natural resources — such as oil producing Alaska and Texas — have another advantage: They can raise revenue by taxing economic activity associated with those resources, which makes them less-reliant on individual income taxes.
The top 10 also includes some more populous states, like Florida (#4) and Texas (#6). In these states, lawmakers have prioritized low taxes, although this comes with certain trade-offs, such as lower spending on government services and benefits.
States higher up the income-tax rankings have low or no income taxes. A state’s sales tax ranking reflects the rates and design; for instance, broad-based sales taxes scores points for neutrality in the Tax Foundation’s formula. Its property tax ranking is calculated based on property taxes paid as a percentage of personal income.
Here are the highest-ranking states in the 2025 State Tax Competitiveness Index:
1. Wyoming
- Individual income tax rank: 1st (tie)
- Sales tax rank: 7th
- Property tax rank: 44th
2. South Dakota
- Individual income tax rank: 1st (tie)
- Sales tax rank: 31st
- Property tax rank: 10th
3. Alaska
- Individual income tax rank: 1st (tie)
- Sales tax rank: 5th
- Property tax rank: 30th
4. Florida
- Individual income tax rank: 1st (tie)
- Sales tax rank: 14th
- Property tax rank: 21st
5. Montana
- Individual income tax rank: 10th
- Sales tax rank: 3rd
- Property tax rank: 18th
6. New Hampshire
- Individual income tax rank: 12th
- Sales tax rank: 1st
- Property tax rank: 39th
7. Texas
- Individual income tax rank: 1st (tie)
- Sales tax rank: 36th
- Property tax rank: 40th
8. Tennessee
- Individual income tax rank: 1st (tie)
- Sales tax rank: 47th
- Property tax rank: 33rd
9. North Dakota
- Individual income tax rank: 17th
- Sales tax rank: 15th
- Property tax rank: 4th
10. Indiana
- Individual income tax rank: 16th
- Sales tax rank: 17th
- Property tax rank: 5th
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