1. Texas
Texas is famous for having no state income tax, which makes paychecks look bigger at first glance. But that missing income tax revenue shows up elsewhere, especially in property taxes that rank among the highest in the country. Homeowners in fast-growing metro areas like Austin and Dallas often see annual tax bills that climb quickly as property values surge. If you’re moving for affordability, that rising local tax burden can undercut the savings you expected.
There’s also the cost of infrastructure strain in a rapidly growing state. The February 2021 winter storm exposed vulnerabilities in the power grid managed by Electric Reliability Council of Texas, leading to widespread outages and billions in damages. Rapid population growth has outpaced roads, water systems, and public services in some regions. You may save on income tax, but you could pay indirectly through higher local fees, insurance premiums, and service disruptions.
2. Florida
Florida draws newcomers with its lack of a state income tax and sunny lifestyle. However, property insurance costs have soared in recent years, especially in coastal areas vulnerable to hurricanes. After major storms like Hurricane Ian, insurers raised rates sharply or exited the market. For homeowners, the insurance bill can rival what they would have paid in state income taxes elsewhere.
Climate risk is more than theoretical here. Sea-level rise and intensifying storms have pushed up both private insurance premiums and assessments in state-backed programs. Condo owners have also faced steep special assessments tied to new safety regulations passed after the Surfside condominium collapse. In short, low income taxes don’t shield residents from high housing-related costs.
3. Tennessee
Tennessee eliminated its tax on investment income in 2021, making it one of the states with no broad income tax. That’s attractive for retirees and high earners, but the state relies heavily on sales taxes for revenue. Tennessee’s combined state and local sales tax rates are among the highest in the nation. That means everyday purchases—from groceries (partially taxed) to appliances—can feel more expensive over time.
Heavy reliance on sales tax tends to hit lower- and middle-income households harder because they spend a larger share of their income on taxable goods. Local governments may also use fees and targeted taxes to make up revenue gaps. Rapid growth in cities like Nashville has driven up housing prices significantly. So while you skip income tax, your overall cost of living may still climb quickly.
4. Nevada
Nevada also has no state income tax, which appeals to workers and retirees alike. But its economy is heavily dependent on tourism, gaming, and hospitality industries centered in Las Vegas. During economic downturns, like the early months of the COVID-19 pandemic, unemployment in Nevada spiked dramatically. A narrow economic base can create volatility that affects job stability and state revenues.
To generate revenue, Nevada relies significantly on sales taxes and gaming-related taxes. That structure works well when tourism is strong but becomes fragile when visitor numbers drop. Public services can feel the strain during downturns, especially in education funding. The absence of income tax doesn’t necessarily mean fiscal stability.
5. Washington
Washington does not levy a traditional tax on wage income, making it appealing to high earners in tech hubs like Seattle. However, the state depends heavily on sales taxes and business taxes. Washington’s sales tax rates are among the highest in the country when state and local rates are combined. Big purchases can quickly offset income tax savings.
The state has also implemented a capital gains tax on certain high earners, upheld by the Washington Supreme Court in 2023. While it applies only above a high income threshold, it complicates the “no income tax” narrative. Housing affordability is another major challenge in the Seattle metro area. For many residents, the real financial pressure comes from home prices and everyday costs rather than income taxes.
6. South Dakota
South Dakota is often cited as tax-friendly because it has no state income tax. It also keeps corporate taxes low, which can attract certain types of businesses. However, the state relies significantly on sales taxes and federal funding to support services. In rural areas, limited healthcare access can be a real concern.
South Dakota has not expanded Medicaid under the Affordable Care Act until voters approved expansion in 2022, and implementation has been gradual. Sparse population density can mean longer travel times for medical care and fewer specialists. Public transportation options are minimal outside major towns. For some families, those trade-offs outweigh the tax advantages.
7. Wyoming
Wyoming offers no state income tax and is frequently praised for fiscal conservatism. The state funds much of its budget through mineral extraction taxes, particularly coal, oil, and natural gas. That revenue stream can fluctuate sharply with energy markets. When commodity prices drop, budget shortfalls can follow.
A dependence on energy extraction also raises long-term economic diversification questions. As coal production has declined nationally, Wyoming has faced pressure to adjust its revenue model. School funding debates have emerged as mineral revenues fluctuate. So while personal income taxes are absent, the broader fiscal picture can be unpredictable.
8. Alaska
Alaska has no state income tax and even pays eligible residents an annual dividend through the Alaska Permanent Fund. That sounds like a financial win on paper. However, Alaska’s cost of living is significantly higher than the national average, especially in remote communities. Groceries, utilities, and transportation can be far more expensive due to geography and supply logistics.
The state relies heavily on oil revenues, which can be volatile. Budget debates have intensified in years when oil prices decline. Public services, including higher education funding, have faced cuts during fiscal shortfalls. Residents may receive a dividend, but they also navigate higher everyday expenses and economic uncertainty.
9. New Hampshire
New Hampshire has no broad tax on earned income and has been phasing out its tax on interest and dividends. That makes it attractive to certain retirees and investors. However, property taxes in New Hampshire are among the highest in the country. Local governments rely heavily on them to fund schools and services.
This structure creates disparities between wealthier and less affluent towns. School funding lawsuits have periodically challenged the system’s fairness. Renters indirectly bear the cost as landlords factor property taxes into rents. The absence of a wage income tax doesn’t mean housing costs will feel light.
10. North Dakota
North Dakota has relatively low income tax rates and has reduced them further in recent years. The state has benefited from oil production in the Bakken formation. During oil booms, job growth and state revenues surged. But those gains have proven cyclical.
When oil prices fell sharply in 2014 and again in 2020, employment and revenue declined. Communities that expanded quickly during boom years faced housing oversupply and economic slowdowns. Infrastructure built for rapid growth sometimes outpaced long-term demand. A low-tax environment tied closely to energy markets can come with pronounced ups and downs.
11. Delaware
Delaware is known for having no state sales tax, which makes shopping feel cheaper. It’s also a corporate haven, with many companies incorporated there due to business-friendly laws. But Delaware does impose income taxes, and property taxes, while lower than some states, vary by county. The lack of sales tax doesn’t automatically translate into a low overall tax burden.
Local governments rely on other revenue sources, including fees and gross receipts taxes on businesses. In certain areas, especially near popular beach towns, housing demand has driven up prices significantly. Infrastructure and environmental concerns along the coast require ongoing investment. So while checkout lines may be tax-free, the broader fiscal picture is more nuanced.
This post The Unexpected Risks of Low-Tax States was first published on American Charm.
