Wyoming Tops, New York Ranks Last in New State Tax Index

The Tax Foundation, a nonpartisan research group that tracks state tax systems, released its 2026 State Tax Competitiveness Index on October 30, 2025. The index scores each state's tax code as it stood on July 1, 2025, and this year's edition puts Wyoming first overall and New York last, a familiar split at the top and bottom but one with fresh detail on which states are actively rewriting their income tax rules.

What changed

Wyoming's number one ranking rests on the same structural feature that keeps it near the top every year: the state levies neither an individual nor a corporate income tax, so it scores close to the maximum on both components of the index. South Dakota, New Hampshire, Alaska and Florida round out the top five for similar reasons. New York lands at the bottom largely because of its individual income tax, which the Tax Foundation's index describes as one of the most steeply graduated and highest-rate systems in the country, reaching 10.9 percent on taxable income above $25 million for joint filers, with several brackets between 6.85 percent and 10.3 percent applying well below that threshold. New Jersey, California, Connecticut and Maryland fill out the rest of the bottom five.

The more useful news for high earners sits in the middle of the pack, where several states have climbed sharply over the past several years by cutting or flattening their income tax. Since 2020, Tennessee has risen from 38th to 8th, Iowa from 43rd to 17th, Georgia from 28th to 18th and Louisiana from 40th to 31st, according to the Tax Foundation's own review of the index's movers. Louisiana's climb followed a 2024 overhaul that cut its individual income tax from a top rate of 6 percent to a flat 3 percent and consolidated five corporate tax brackets into one. Iowa's gains came from multi-year reforms that converted its individual income tax to a flat 3.8 percent rate and cut its top corporate rate from 12 percent to 7.1 percent. New Hampshire also gained ground in the 2026 edition after finishing the phase-out of its tax on interest and dividend income, leaving it with no tax on wages, interest or dividends at all.

Who is affected

The ranking matters most to people with real flexibility about where they live and pay tax: retirees choosing a state for their next chapter, business owners who can domicile a company or a family office in a different state, remote employees whose employer no longer cares which state they work from, and anyone sitting on concentrated stock or a pending liquidity event who is weighing a move before a sale. It matters less to someone whose income, property and spending are already anchored to one state for reasons unrelated to tax.

The after-tax math

Example, using round numbers: a married couple with $1,000,000 of wage income living in New York faces a state marginal tax rate in roughly the high single digits on that layer of income, before New York City's own tax if they live there. If the same $1,000,000 of income were instead earned by a couple living in Wyoming, the state income tax bill on it would be zero, because Wyoming has no individual income tax at all. The illustrative gap on this slice of income alone can run to tens of thousands of dollars a year, before accounting for other state and local taxes such as property tax, sales tax and any local income tax that also vary widely by location.

Moves to discuss with your advisor

Households already weighing a move for retirement, a business sale or a new job often find it worth discussing residency and domicile rules with a CPA or estate attorney well before the move, since simply owning a second home or spending part of the year in a low-tax state does not by itself end tax obligations to the old state. Business owners exploring a new headquarters or family office location may want a state-by-state comparison that goes beyond the income tax rate to include estate tax exposure, since New York and a handful of other states also impose their own estate tax on top of the federal one. None of this changes based on a single year's ranking, and households in stable situations may find the index more useful as a data point than as a reason to act.

What to watch

Louisiana, Idaho and Iowa's moves suggest more states may keep flattening or cutting individual income tax rates heading into 2026 legislative sessions, a trend the Tax Foundation has tracked for several years running. On the other end, New York, New Jersey and California face structural budget pressures that make near-term income tax cuts unlikely, so the gap this index measures may widen before it narrows.

After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.