Five states have no property tax on real estate: Alaska, Delaware, Montana, New Hampshire, and South Dakota
If you own a home or land, you are used to paying property tax to your local government each year. Five U.S. states do not require this tax on real property — the land and buildings you own. Those states are Alaska, Delaware, Montana, New Hampshire, and South Dakota. However, the absence of property tax does not mean these states have no taxes at all. Each one funds schools, roads, and services through other revenue sources, and some charge taxes on other things that other states do not.
Understanding what taxes replace property tax in these states matters if you are considering a move or own property in one of them. A state without property tax might have higher income tax, sales tax, or both. The total tax burden depends on how you earn money and what you spend it on, not just on real estate.
Key Takeaways
- Alaska, Delaware, Montana, New Hampshire, and South Dakota do not tax real property, but each funds state services through different tax sources.
- Alaska has no state income tax or property tax, making it the lowest-tax state overall for most residents.
- New Hampshire and Tennessee tax only investment income and retirement distributions, not wages, which affects how much you owe based on your income type.
- Delaware, Montana, and South Dakota all have state income tax, so moving there for no property tax does not mean avoiding income tax.
- Property tax rates vary widely among states that do tax property, so a state without property tax is not always cheaper than a high-tax state with lower income tax.
Alaska: No property tax and no state income tax
Alaska stands alone as the only state with neither property tax nor state income tax. The state funds itself through oil revenue, a corporate income tax, and sales tax. Because Alaska owns vast oil reserves and collects royalties from oil companies, it does not need to tax residents the way other states do.
Alaska does charge sales tax, which varies by municipality from 0 to 7.5 percent. Some cities and boroughs add local property taxes despite the state having none, so you should check your specific location before assuming you pay nothing. The state also taxes fishing and hunting licenses heavily, and some communities charge local income taxes even though the state does not.
For most residents who earn wages and own property, Alaska's lack of income and property tax is a significant advantage. However, the cost of living is high due to shipping and distance, which can offset tax savings.
New Hampshire and Tennessee: Income tax only on investment income
New Hampshire and Tennessee are unusual: they tax neither wages nor property. Instead, they tax only investment income — dividends, interest, and capital gains from stocks and bonds. If you earn a salary or hourly wage, you owe no state income tax in either state. If you live on investment returns, you pay tax on those returns.
New Hampshire funds schools and services through sales tax (6 percent), property tax on business equipment (not residential property), and the tax on investment income. Tennessee has no state sales tax but charges sales tax at the local level, which varies widely by county. Tennessee also taxes investment income at 3.75 percent, while New Hampshire's rate is 5 percent.
This structure favors wage earners and retirees living on Social Security or pensions, but penalizes people whose income comes from stocks, bonds, or rental properties. A retiree with $100,000 in annual dividend income would owe tax in these states, while a retiree with $100,000 in pension income would not.
Delaware and Montana: Property tax absent, income tax present
Delaware and Montana both have no property tax on real estate, but both charge state income tax. Delaware's income tax ranges from 2.2 to 5.75 percent depending on income level. Montana's ranges from 1 to 6.9 percent. Both states also charge sales tax — Delaware at 0 percent statewide (though some counties add local sales tax) and Montana at 0 percent statewide (though some cities add local sales tax).
Delaware is known for low corporate taxes and is a popular state for business registration, but that does not translate to low personal income tax. The state funds itself through income tax and a gross receipts tax on businesses. Montana funds itself through income tax, a coal severance tax (a tax on coal extracted from the state), and other sources.
For someone earning a high salary, Delaware or Montana might be cheaper than a state with property tax but lower income tax. For someone earning little income but owning valuable property, the opposite is true. The comparison depends entirely on your income and property value.
South Dakota: No property tax on residential real estate
South Dakota has no property tax on residential real estate, but it does tax agricultural land and commercial property. The state has no state income tax, making it attractive to high earners. South Dakota funds itself through sales tax (4.5 percent statewide, plus local additions that can reach 8 percent total) and excise taxes on specific goods.
Because South Dakota has no income tax and no residential property tax, it is often compared to Alaska and Tennessee as a low-tax state. However, the sales tax burden is higher than in many other states, which means people who spend a lot pay more in tax. Someone who earns $200,000, spends it all, and owns a home pays no income or property tax but pays sales tax on nearly every purchase.
Agricultural and commercial property owners in South Dakota do pay property tax, so the state's "no property tax" label is incomplete. If you own a farm or business property, you will owe tax on it.
How states without property tax fund schools and services
States without property tax must raise money another way. The most common sources are income tax, sales tax, and business taxes. Some states, like Alaska, have natural resource revenue. Others rely on a mix.
This matters because it changes who bears the tax burden. A state that funds schools through sales tax instead of property tax shifts the burden from property owners to consumers. A state that uses income tax shifts it to wage earners. A state that uses business taxes shifts it to corporations and their customers. No state avoids taxation; it straightforward collects it differently.
Property tax is a local tax in most states, meaning your city or county sets the rate and keeps the money. States without property tax often have less local control over school funding, which can lead to unequal resources between wealthy and poor areas. Some states without property tax have had to increase income or sales tax significantly to make up the difference.
Comparing total tax burden across states
A state without property tax is not automatically cheaper than a state with property tax. The total amount you pay in state and local taxes depends on your income, what you spend, and what you own.
Consider two scenarios: A person earning $100,000 per year and owning a $400,000 home. In a state with 1 percent property tax and no income tax, they pay $4,000 per year in property tax. In a state with 5 percent income tax and no property tax, they pay $5,000 per year in income tax. The second state is more expensive for this person, despite having no property tax.
Now consider a person earning $50,000 per year and owning a $400,000 home. In the first state, they still pay $4,000 in property tax. In the second state, they pay $2,500 in income tax. The second state is cheaper. The comparison flips based on income.
Before moving for tax reasons, calculate your own tax bill in both states using your actual income and property value. Many tax calculators online let you compare specific scenarios.
Frequently Asked Questions
Do any states have no taxes at all?
No. Every state funds schools, roads, and services through some form of taxation. Alaska comes closest, with no property tax or income tax, but it charges sales tax and business taxes. Even states with low overall tax burdens collect revenue somewhere.
Can I avoid property tax by moving to Alaska or South Dakota?
You can avoid state property tax, but you will pay other taxes instead. Alaska has sales tax and business taxes. South Dakota has high sales tax. Both have lower overall tax burdens than many states for high earners with little spending, but not for everyone. Calculate your specific situation.
Why do some states have property tax and others do not?
History and resources shape tax policy. States with valuable natural resources (like Alaska's oil) or strong business sectors (like Delaware's corporate registration) can fund themselves without property tax. States that rely on local schools funded by local property tax have kept the system because changing it is politically difficult.
If I own a business in a no-property-tax state, do I pay property tax on the building?
It depends on the state. South Dakota taxes commercial property but not residential property. Alaska and New Hampshire tax business property in some cases. Delaware and Montana do not tax real property at all, including business buildings. Check your specific state and municipality.
Is New Hampshire really a no-income-tax state if it taxes investment income?
New Hampshire taxes only investment income, not wages. If you earn a salary, you owe no state income tax. If you live on dividends or interest, you do. It is more accurate to say New Hampshire has no wage tax, not no income tax.