How does your state’s effective tax rate rank?

State and local taxes remain one of the most consequential and least intuitive variables in financial planning.

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A recent analysis from WalletHub underscores just how wide the dispersion is: The gap between the lowest- and highest-tax states approaches 10 percentage points of income, with households in the most expensive states paying more than twice as much as those in the least.

For advisors, the key takeaway isn’t just where a state ranks, it’s how the tax burden is constructed. 

Total liability reflects a shifting mix of real estate, income, sales and excise, and in some jurisdictions, vehicle property taxes. That mix can materially change planning outcomes. States with no income tax, such as Washington or Texas, often replace that revenue with higher consumption or property taxes, altering the timing and predictability of client cash flows.

This creates planning trade-offs that go beyond headline rates. Property-heavy states can disproportionately impact retirees or clients with concentrated real estate exposure, while sales-tax-driven systems tend to be more sensitive to spending behavior. Meanwhile, income-tax-heavy states directly affect withdrawal strategies, Roth conversions and the marginal value of income smoothing.

The WalletHub methodology applies a standardized “median U.S. household” framework — factoring in income, home values and spending — to isolate state-level policy differences.

The analysis assumes a median U.S. household earns $81,211 annually (the average income of the third quintile), owns a home valued at $332,700, drives a car worth $29,100 (the top-selling model of 2025) and reflects typical spending patterns for households at that income level.

The study also includes an adjusted ranking that accounts for differences in cost of living, which can materially shift how states compare. High-cost states with elevated taxes may appear somewhat less punitive after adjusting for higher baseline incomes and expenses, while some lower-tax states lose ground when local purchasing power is taken into account.

For advisors, that alternative lens is a useful reminder that tax burden doesn’t exist in isolation, and that relocation decisions should be evaluated alongside broader cost-of-living dynamics. 

Here’s how your state stacks up: