Taxes may be one of the few guarantees in life, but they aren’t all created equal. Residents in some states feel a bigger tax bite than others when April 15 comes around.
However, measuring which state has the best tax climate is difficult given the various types of taxes, exemptions and complicated tax schedules.
Despite the complexities, the Tax Foundation gives it a go every year. In its 2016 State Business Tax Climate Index report, the think tank ranks the tax environment of each state in its search for the best – meaning the smallest – tax burden in the U.S. It puts the most weight on individual income tax (33.2 percent) followed by sales tax (22.3 percent), corporate tax (18.5 percent), property tax (14.8 percent) and unemployment insurance tax (11.3 percent).
The top-rated states have something in common. Eight of the top 10 states don’t levy at least one major tax — either corporate income tax, individual income tax or sales tax — and four of them eliminate two of the major taxes. However, two states in the top ten have all five taxes, but the rates are relatively low.
Sates with the worst tax rating share several characteristics, too, including complex, non-neutral taxes with comparatively high rates.