Most Tax-Friendly States

5 Most and 5 Least Tax-Friendly States

Some states are a little kinder to their residents than others when it comes to taxes. Based on research compiled by the Tax Foundation, WalletPop.com discovered where the grass is a little greener in some areas. The research considers a number of criteria, including state and local income taxes, property taxes and local sales taxes.

Read on to see the most tax-friendly states.

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Most Tax-Friendl... Some states are a little kinder to their residents than others when it comes to taxes. Based on research compiled by the Tax Foundation, WalletPop.com discovered where the grass is a little greener in some areas. The research considers a number of criteria, including state and local income taxes, property taxes and local sales taxes.

Read on to see the most tax-friendly states.

(iStock Photo)
5. New Hampshire The Granite State is known for its fierce independent streak, and, when it comes to taxes, it's no different. New Hampshire's personal income tax system is simple and inexpensive: It's a flat tax with no individual brackets. Income tax applies only to unearned income like dividends and interest. That makes the average income tax paid in New Hampshire an astonishing $89 per person. New Hampshire also imposes no sales tax on its residents. It makes up the difference in its budget by collecting a relatively high level of state and local property taxes. Despite coming in third with respect to property taxes paid nationally, the overall burden still remains low.

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4. Florida Sunshine and low tax rates have helped Florida become one of the fastest-growing states in the country. Florida imposes no personal income tax and no inheritance tax. Property taxes are collected at the state and local levels with rates per person landing it near the middle of all states when it comes to overall property tax paid out. As the state tries to keep taxes low for residents in a tight economy, it is exploring alternative ways of raking in revenue -- such as a proposed gambling deal with the Seminole tribe, which is expected to provide the state with $412 million. Florida is also grabbing at federal stimulus dollars (which they originally proposed to reject) to keep the budget afloat -- subsidies like the proposed $880 million Medicaid grant have helped Florida lawmakers avoid expensive tax hikes.

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3. Wyoming Like Nevada, Wyoming doesn't impose any personal income taxes. State sales taxes ring in at well below the national average, saving taxpayers a cut at the cash register. The Cowboy State is probably best known for its beautiful scenery. Surprisingly, the reasonably-priced real estate is only taxed at a fraction of the actual value -- even better, residents are legally protected from counties and municipalities increasing property tax rates. The state also allows for considerable relief from property taxes in many circumstances. There is no separate inheritance tax and, as in Nevada, any estate tax is based on the federal estate tax.

Despite low taxes, the state doesn't appear to skimp on services: Wyoming has the distinction of being the first to have a county public library system (the Laramie County Public Library System, organized in August 1886). It may help that there are few taxpayers who require services; at last count, the entire state population was 532,668 -- less than the population of Boston, Denver or Seattle.

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2. Nevada Nevada doesn't impose a personal (or corporate) income tax. The state's estate tax is based on the federal estate tax (like many states, so there's nothing payable for this year), property taxes are reasonable, and sales taxes are also low. So how does this state manage to meet its expenses? Nevada's business-tax friendly climate continues to attract business (and thus, revenue) to the state. On top of that, it has the added advantage of off-loading some of its tax burden onto tourists through sales and entertainment-related taxes. Apparently, it really is true that what happens in Vegas, stays in Vegas -- especially when it comes to dollars (the strip in Vegas has been tagged as one of the top tourist destinations in the U.S.).

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1. Alaska Alaska doesn't have a state income tax, state sales tax or a state inheritance tax.

It hasn't always been that way. In 1978, Alaska was ranked 49th, making it one of the most tax-heavy states in the country. Residents can thank federal funds and big oil for the dramatic reversal.Three years ago, federal funding accounted for almost one-fifth of Alaska's revenue. Per capita, Alaska receives more federal funding than any other state in the country, an honor held since 1999. That means much of Alaska's infrastructure is paid for by federal funds, not state funds. If you don't have much in the way of expenses, you don't need much in the way of additional revenue. As a result, the tax burden stays pretty low.

But wait! The Last Frontier's tax perks get even better: The completion of the federally-funded Trans-Alaska pipeline and the establishment of Alaska as an energy center for gas and oil has proven to be a boon for residents. After the pipeline was completed, the state created a program called the Alaska Permanent Fund, that invests and distributes royalties from oil companies doing business in Alaska to residents. In 2008, the check was a record $3,269 per eligible resident. Eligible residents are those (including children) who have lived in Alaska for a full calendar year.

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Least Tax-Friend... Read on to see the top 5 least tax-friendly states in America.

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5. Hawaii If there was an award for complicated tax systems, Hawaii would likely take the honor. The Aloha State's incredibly complex, tiered system consists of 12 brackets with a top rate of 11% kicking in at $200,000 for individual taxpayers ($400,000 for married taxpayers filing jointly). This makes Hawaii's state income tax rate the highest in the nation. Usually having a high top tax rate isn't enough to tip you into a top tax burden spot -- unless a significant portion of your taxpayers happen to be at the top to begin with ... and that's what has happened to Hawaiian taxpayers. An amazing 6.4% of Hawaii's households, or 28,363, are classed as millionaires, down from 2008 but still the highest proportion of millionaires of any state for the second year in a row.

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4. Maryland Maryland's struggle to balance its budget has been well documented over the past year, with emphasis on the consequences of its infamous "millionaire's tax." More so than other states that have implemented such a tax, Maryland is rumored to be losing taxpayers as a result of rising taxes. According to the data, one in eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008. Despite the disappearing acts of its millionaires, Maryland will likely keep its surtaxes for the wealthy. The bigger question is whether it will keep its residents.

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3. Connecticut Connecticut has the advantage of being a fairly wealthy state, which means pretty good roads and schools, among other perks. The Constitution State reaps those funds from high-earning taxpayers, many of whom work in New York but want to live in a more suburban atmosphere. Unfortunately, suburbia doesn't come cheap. While Connecticut's state income tax is fairly average, the state more than makes up for it in high property taxes. Excise taxes on gas and cigarettes also figure in at the top. And of course, if you have rich taxpayers in your state, you'll want to tax them coming and going: Connecticut imposes an estate -- and gift -- tax.

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2. New York The Empire State just missed the dubious honor of getting the top spot with a total burden of 11.7% -- just 0.1% behind its neighbor, New Jersey. New York is generally regarded as an expensive place to live because of the cost associated with living in New York City, which has a total population of more than many states (about 19 million). But tax woes aren't limited to the city: The state of New York has been struggling to close an estimated $9 billion deficit. That means no tax cuts for residents. In fact, adding to its already high tax burden, New York is likely to see some additional taxes on everyday items shortly -- a tax on soda tops the list.

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1. New Jersey Not only does New Jersey have the worst team record in the NBA this year, they have the worst tax record as well. Taking into consideration state and local property, sales, and income taxes, those in the Garden State pay out a whopping 11.8% in taxes.

It was no surprise, then, that voters booted existing Governor John Corzine (D) out of office last fall in favor of GOP challenger Chris Christie. Voters cited the economy and the state's high tax burden as their biggest concerns -- a particularly timely gripe since taxes in the states had just gone up (again).

New Governor Christie initially received praise for his handling of what was, all agreed, a fairly substantial economic challenge. He cut spending and made some painful decisions on raising taxes to get the state's budget in order. But his "we're all in this together" stance took a beating when he refused to extend the tax rate to top earners.

Hopefully, the tax burden will turn around in the next four years ... or Christie may find himself joining in a revolving door of New Jersey governors.

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Tax-Friendly (an... Click here to see which states are more tax-friendly than others when it comes time for retirement.