In November, the Office of Revenue Analysis for the District of Columbia released a report on the tax rates and tax burdens of the largest city in each state in the country. The report is designed to give policymakers and curious wonks an idea of how D.C. tax environment compares against the tax environment in other major cities in the U.S., but we can use the image it contains of the national tax situation — as described by the largest city in each state — to look at which states have the lowest general tax burden and why.
For a hypothetical family of three earning $50,000 per year, the average local tax burden was $4,669, or 9.3% of income. The range of this burden stretches from 3.7% percent at the low end to 20.9% at the high end. The D.C. Office of Revenue Analysis highlights a couple of reasons why tax burdens can vary so greatly between the queen cities of different states. These reasons include variable demand for government services (whether garbage collection is a private or public service), differences in the cost of living, the size and health of the tax base, and even geography. As half the country is well aware, snow and ice removal is expensive.
We’ll break out the results for different income levels in each city, but lowest five were determined using a hypothetical family of three earning $50,000 in 2013. Keep in mind that the data is for state and local taxes only, federal taxes are excluded.
|Income tax ($)||Property tax ($)||Sales tax ($)||Auto tax ($)||Burden ($)||Burden (%)|
5. Anchorage, Alaska | Anchorage is a city that doesn’t charge local income tax in a state that doesn’t charge a state income tax, putting the city about $1,200 ahead of the average taxpayer living in the queen city of any state. Most of the city’s income comes in the form of property taxes, for which a hypothetical family of three earning $50,000 per year paid an average of $2,507 in 2013, accounting for the vast majority of the family’s total tax burden. The family had an average total tax burden of $2,782, or 5.6% of income.
4. Jacksonville, Florida | Jacksonville is another city where there’s no local income tax in another state where there’s no income tax. A hypothetical family of three earning $50,000 per year will pay zero dollars in income tax to the state or the local government compared to a national average income tax bill of about $1,260 in 2012 ($1,196 median.)
Here’s another cool thing about Jacksonville: it doesn’t compensate for not having a local income tax by jacking up property, sales, or auto taxes. In this city, a hypothetical family of three earning $50,000 paid taxes below the national average in all these categories, bearing an average total tax burden of just $2,725 in 2012, or about 5.4% of income.
3. Memphis, Tennessee | A hypothetical family of three earning $50,00 in Memphis paid $2,689 in state and local taxes in 2013, or 5.4% of income.
2. Billings, Montana | A hypothetical family of three earning $50,000 in Billings would pay just $2,532 to state and local government, or 5.1% of income. It’s worth pointing out that unlike the other members of the bottom five club, Billings is in a state that charges income tax. What really sets the city apart is its incredibly low sales tax burden.
1. Cheyenne, Wyoming | With a local tax burden of $1,845, a hypothetical family of three earning $50,000 per year would owe just 3.7% of income to the state and local government. Like most of the other cities with the lowest overall tax burden, Cheyenne charges no local income tax, and residents pay below-average property, sales, and auto taxes. Across all income levels taken together, Cheyenne is the city with the lowest individual tax burden.