The 5 States With the Fairest Taxes (and the 5 Worst States)

A new WalletHub study rates the country’s most and least fair state tax systems.

The 5 States With the Fairest Taxes (and the 5 Worst States) Photo (cc) by 401(K) 2013

Mirror, mirror, on the wall, who has the fairest tax system of all?

According to a new survey by WalletHub, Montana’s state and local tax system is the fairest in the nation. The Big Sky state was ranked first in tax fairness by both liberals and conservatives.

Montana Department of Revenue director Mike Kadas told the Helena Independent Record:

From the perspective of our own structure, what really underlies this is a roughly proportional property tax system, a mildly progressive income tax system and no sales tax. It is the sales tax that adds the regressivity into an overall tax structure.

Yep, no general sales tax. The Washington Post shed more light on the state government’s sources of revenue:

Beyond income taxes, Montana relies on selective sales taxes on items such as tobacco and gasoline for about a fifth of its total tax revenue. Taxes on licenses — such as licenses for alcohol sales and operating licenses — and taxes on oil and gas production account for another fifth, and all are more stable revenue sources than income taxes.

WalletHub’s state rankings for the most and least fair tax systems are based on its online survey of more than 1,000 people. The site asked respondents about what they think makes up a fair state and local tax system, then compared that with the actual structure of states’ tax systems.

It turns out Americans think a progressive tax structure, where the more money you make, the higher the percentage you pay in taxes, is the fairest way for government to raise revenue. Even when considering political ideology, the results were the same.

WalletHub analyzed the state and local tax burdens (by income level) across all 50 states. The results are startling, though not unexpected.

“The real relationship between household income and state and local tax burden is negative — as income goes up, state and local tax burden goes down — the exact opposite of what Americans think is fair,” WalletHub said.

The top five fairest state and local tax systems are:

  1. Montana.
  2. Oregon.
  3. South Carolina.
  4. Delaware.
  5. Idaho.

The least fair state and local tax systems are:

  1. Washington state (last place).
  2. Hawaii.
  3. Arkansas.
  4. Illinois.
  5. Florida.

According to the Post, Washington is one of just seven states with no income tax, so it raises the bulk of its money through a regressive sales tax, which spreads the tax burden evenly, regardless of how much money an individual earns.

Click here to see where your state ranks.

I was thrilled to see my home state ranked first for the fairness of its tax system. Go, Montana!

How did your state rank? Share your comments below or on our Facebook page.

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