The promise of a state with no income tax can be incredibly appealing—especially for individuals coming from high-tax states like California, New York, or New Jersey. With the rise of remote work and the desire for a more flexible lifestyle, many people are packing up and heading to places like Florida, Texas, or Nevada in hopes of keeping more of their hard-earned money. At first glance, the math seems straightforward: no state income tax equals more money in your pocket.
But here’s the catch—no state truly operates tax-free. States still need to fund public services like education, infrastructure, and public safety. If they aren’t collecting income tax, they’re likely making up for it in other ways. Hidden tax burdens can creep up in the form of high property taxes, steep sales taxes, and costly fees. In many cases, you could find that your overall cost of living remains unchanged—or even increases—after your move. Let’s take a closer look at the hidden tax costs you need to understand before moving to a no-income-tax state.
Property Taxes Can Be Shockingly High
While you might save money on income taxes, you could find yourself paying significantly more in property taxes each year. This is especially true in states like Texas and New Hampshire, where property tax rates consistently rank among the highest in the nation.
Take Texas, for example. The state’s average effective property tax rate hovers around 1.6% to 2.1%, depending on the county. That means if you purchase a $500,000 home, you could owe $10,000 or more in annual property taxes. By comparison, California’s average effective property tax rate is closer to 0.7%, which would result in a bill of around $3,500 for the same home. While California collects significant income tax, its Proposition 13 caps property tax growth, offering more predictability for homeowners.
New Hampshire offers another eye-opening example. Despite having no income or sales tax, it relies heavily on property taxes to fund local services. As a result, the state has one of the highest property tax burdens in the country. This can come as a surprise to retirees or transplants from states where housing-related taxes are relatively mild. For those considering relocation, it’s essential to run the numbers not just on income taxes, but on expected property tax obligations. The savings on wages may be quickly offset by the cost of owning a home.
Sales Tax Adds Up Quickly
Income taxes are not the only form of taxation that impacts your bottom line. In many no-income-tax states, sales tax fills a large part of the budget gap. And unlike income taxes, which are typically progressive, sales taxes are regressive—they impact lower-income residents more heavily, since a greater share of their income goes toward consumption.
Tennessee is a prime example. While the state does not tax personal income, it levies one of the highest combined state and local sales tax rates in the country—often over 9%. That means every time you buy clothing, electronics, or dining out, you’re paying a sizable premium. Even necessities like groceries and medications can be partially taxed depending on local jurisdictions.
Nevada is another state where sales tax can be surprisingly burdensome. The statewide base rate is 6.85%, but local jurisdictions push the total rate closer to 8.375% in areas like Las Vegas. Over time, these small incremental costs can significantly affect your budget, particularly for families or individuals with higher discretionary spending.
If you’re moving from a state like Oregon, where there is no sales tax, the difference can be particularly stark. A $2,000 furniture purchase in Portland costs exactly $2,000. That same purchase in Houston or Miami could cost over $2,150 once tax is added. While it’s easy to focus on paycheck savings, the cost of everyday life can climb quickly due to these pervasive taxes on consumption.
Fees, Tolls, and “Creative” Revenue Sources
States that don’t collect income tax often become masters of “creative” revenue generation. This can take many forms, from steep fees for government services to excessive toll road networks. Individually, these may not seem significant, but when taken together, they can have a real impact on your budget.
Take Florida, for example. Although the state doesn’t tax personal income, it raises substantial revenue through toll roads. The Florida Turnpike and many urban expressways require electronic toll tags or frequent payments, especially for commuters. Over the course of a year, tolls can run into the hundreds—sometimes thousands—of dollars for families in high-traffic regions like Miami or Orlando.
Vehicle registration fees are another area where costs quietly rise. In Nevada, annual vehicle registration can be significantly higher than in states with income tax. The state bases its fees in part on the original purchase price and age of the vehicle, meaning newer or luxury cars can cost several hundred dollars per year just to remain on the road.
Small business owners may also encounter hidden fees. For instance, Texas does not have a personal income tax but does impose a gross receipts tax known as the Texas Franchise Tax. This tax is based on a business’s total revenue, not net profit, which can disadvantage low-margin companies. Residents of no-income-tax states should be prepared for a more fee-heavy lifestyle. Whether you’re registering a vehicle, setting up a business, or simply driving to work, these hidden costs add up fast.
Insurance Costs and Homeowner Risks
One often-overlooked cost of living in a no-income-tax state is the price of insurance. While not technically a tax, insurance premiums represent a recurring financial burden—and they tend to be higher in regions where environmental risks are greater.
Florida is a perfect illustration of this issue. Homeowners insurance in the Sunshine State is among the most expensive in the country, driven by frequent hurricanes, flooding, and a volatile insurance market. According to recent data, Florida homeowners in certain counties can have premiums of more than $10,000—nearly five times the national average. Texas also sees elevated homeowners insurance premiums due to exposure to hailstorms, hurricanes, and tornadoes. In both cases, these insurance costs can cancel out the expected savings from not paying state income tax.
Auto insurance costs can also be inflated. Nevada, for example, has some of the highest car insurance premiums in the country, particularly in urban areas like Las Vegas. Factors include high accident rates, uninsured drivers, and repair costs. Prospective movers should look closely at both homeowners and auto insurance premiums in their new state. These costs may not appear on a tax return, but they significantly influence your overall financial well-being.
Corporate and Small Business Considerations
Individuals aren’t the only ones who feel the impact of alternative tax structures. Small business owners and corporations often encounter unique challenges in no-income-tax states, particularly when it comes to business taxes and regulatory fees. Washington State, which does not levy a personal or corporate income tax, instead imposes a Business & Occupation (B&O) tax on gross receipts. This tax is calculated on total revenue—not profit—which means that even a business operating at a loss may owe a significant tax bill. For entrepreneurs and sole proprietors, this structure can come as an unpleasant surprise.
Texas, as mentioned earlier, uses a similar system called the Texas Franchise Tax. Though there are exemptions for smaller businesses under a certain revenue threshold, growing companies can suddenly find themselves subject to new taxes and reporting requirements that weren’t part of their previous experience in income-tax states. Nevada has positioned itself as business-friendly with no corporate income tax, but it does require an annual business license fee and charges payroll-based taxes through its Modified Business Tax. These obligations may not be burdensome for large companies but can affect smaller firms with tight margins.
If you run a business—or plan to start one—it’s crucial to research how your new state handles business taxation. The absence of a personal income tax does not guarantee a lower business tax burden.
Cost of Living Doesn’t Always Go Down
There’s a common assumption that leaving a high-tax state will automatically lead to a lower cost of living. But in today’s fast-growing markets, that’s not always the case. Cities like Austin, Nashville, and Miami have experienced explosive growth in recent years. This influx of new residents—many of whom are high-income earners seeking tax relief—has driven up housing prices, rental rates, and overall cost of living. What was once considered an affordable market has, in many cases, become just as costly as the cities people are fleeing.
In Austin, the median home price has surged in recent years, with bidding wars and cash offers becoming the norm. In Miami, skyrocketing rents are pricing out long-time residents, and the cost of services has climbed to meet demand. Even utilities, food, and transportation can be more expensive in areas with limited infrastructure or high demand.
Before assuming a lower tax rate equates to more disposable income, it’s wise to evaluate the total financial picture—including housing, insurance, taxes, and daily expenses. Without a full understanding of these factors, you may find your lifestyle and savings unchanged despite the tax migration.
Residency Rules and Multi-State Tax Traps
For individuals relocating from a high-tax state, there’s another risk to consider: the tax authorities you leave behind may not let go so easily. States like California and New York are notorious for conducting residency audits, especially for high earners and business owners. To truly break residency, you must sever significant ties to your former state. This includes selling or renting out your former home, registering your vehicles in the new state, changing your voter registration, updating your driver’s license, and physically residing in the new location for the majority of the year. Merely buying a second home in Florida and spending the winter there is not enough.
Remote workers face added complexity. If you’re employed by a company based in New York but live in Texas, you may still owe New York state taxes depending on where your work is sourced. The same goes for freelancers and consultants who serve clients across state lines. Missteps here can result in unexpected tax bills and penalties. If you’re planning a move for tax purposes, consult with a tax advisor before and after your relocation. Proper documentation and planning are critical to avoid double taxation or falling afoul of state auditors.
Tax Help in 2025
No-income-tax states may offer a powerful initial draw, especially to those tired of seeing a large chunk of their paycheck vanish each month. But taxes don’t disappear—they just shift. From sky-high property taxes and sales tax to elevated insurance premiums, government fees, and complex residency issues, there are many hidden costs that can quickly erode the financial advantage of a tax-free paycheck. Consulting a knowledgeable tax professional before making such an impactful decision can help save you stress and even money in the long run. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
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