TL;DR
Thirteen states still tax groceries in 2026. In some Alabama counties, the combined rate hits 9% at the register.
“No income tax” states shift the burden to property and capital gains. Texas effective property tax: 1.245%. Washington’s top capital gains rate: 9.9%.
Six states impose inheritance taxes in 2026. In Nebraska, non-relatives pay 15% on everything inherited above $25,000.
The OBBBA raised the federal estate tax exemption to $15M in 2026. Oregon’s exemption stays at $1M. Massachusetts stays at $2M.
New Jersey ranks last in the country for retirement quality despite the nation’s highest average Social Security benefit ($29,562). A large check and a hostile tax environment are not mutually exclusive.
About the author
David Berkowitz is a value investor and the founder of VAP Wealth Advisors. He manages the ValueAligned Portfolio and publishes independent investment research and financial education content under the Berk on Value brand. His work focuses on helping investors build durable wealth through sound, evidence-based decision-making.
vapwealthadvisors.com | @BerkonValue
The total tax burden: the only number that matters
Most Americans evaluate a potential move by asking: Does this state have an income tax? Wrong question.
State income tax is visible. It shows up on every pay stub. The taxes that destroy long-term wealth don’t announce themselves: property levies, sales taxes, capital gains surcharges, inheritance rates, and estate taxes that activate years after you’ve stopped worrying about them.
Cerulli Associates estimates that $2.5 trillion is transferring between generations this year alone, a figure that climbs to $3 trillion annually by 2030. Over the next five years, more than $13 trillion will change hands. Half of all transfers will come from households classified as high-net-worth or ultra-high-net-worth, a group representing only 2% of all households. For pre-retirees between 55 and 70, this is not an abstract projection. They sit at the intersection, inheriting from aging parents while planning what they’ll leave to their own children. Where they live determines how much of that wealth survives both transfers.
The only metric that holds up under scrutiny is the total tax burden: income, property, sales, capital gains, and transfer taxes combined. Ignore any one layer, and you’ve built your retirement plan on a partial map.
The grocery tax holdouts: a tax on existence
Thirteen states still levy a sales tax on groceries as of 2026. Most families overlook this entirely. For the 18.3 million U.S. households that reported food insecurity in 2024, it is not a rounding error. It is a structural barrier.
Alabama
The state recently cut its grocery tax to 2%. That is not the full picture. In counties like Montgomery, local levies push the combined rate to approximately 9% at checkout. State reform that leaves local taxation untouched moves the problem. It does not solve it.
Tennessee
Tennessee holds a 4% state-level grocery tax. Combined with local additions that can reach 2.75%, the grocery tax rate at the register can hit 6.75%. The broader picture is worse: Tennessee’s average combined general sales tax rate runs 9.61%, the second-highest in the country behind Louisiana at 10.11%. Retirees on fixed incomes don’t earn their way out of a consumption tax.
Idaho
Idaho taxes groceries at the full 6% state sales tax rate, the highest grocery-specific rate among states that charge the full rate. A $155 per-person annual tax credit partially offsets the bill. A family of four recovers $620. Whether that covers their annual grocery tax depends entirely on their spending. For many families, it does not.
Kiplinger’s 2026 analysis bluntly put the cumulative impact: some families pay more than $10 in sales tax for every $100 in groceries they buy. That is a 10% effective tax on survival spending.
The no-income-tax mirage: what “free” actually costs
No income tax does not mean low tax. It means a different mechanism. Every state government has to fund its operations. The no-income-tax states redirect that burden onto property and consumption. That works well for some residents and badly for others, and the difference depends on how you hold your wealth.
New Hampshire
No income tax, no sales tax, and an effective property tax rate of 1.35%. On a $500,000 home, that comes to $6,750 per year, a bill that does not shrink when income does. The state phased out its interest and dividends tax in 2025, but the property tax stays. For retirees who own their homes outright and have limited cash flow, this is a persistent drain.
Tennessee
No income tax, but Tennessee runs the nation’s second-highest average combined sales tax at 9.61%. Every purchase gets taxed at the register. Retirees spend their savings, not their paychecks, which makes a high consumption tax directly destructive to purchasing power year over year.
Texas
No income tax and an effective property tax rate of 1.245%. On a $1 million home, the annual property bill runs roughly $12,450, regardless of cash flow. That recurring fixed cost catches retirees whose income drops, but whose real estate value does not.
Washington
The sharpest case. No general income tax. But the state now imposes a tiered capital gains tax: 7% on gains up to $1 million, 9.9% on gains above $1 million. The state estate tax runs to a top marginal rate of 35% on taxable values exceeding $9 million above the $3.076 million exemption. Anyone accumulating long-term wealth through investment in Washington is not in a tax-free state. They are in a state that aggressively taxes wealth accumulation and transfer through various tools.
The inheritance proximity trap: your family tree has a tax rate
Six states still impose inheritance taxes in 2026: Iowa (phasing out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. In these states, the rate your heirs pay depends on their biological proximity to you.
Spouses and direct descendants typically pay nothing. Everyone else enters a progressively punishing rate structure that the deceased cannot renegotiate after the fact.
Nebraska
Class 3 beneficiaries, including friends, employees, business partners, and non-relatives, pay 15% on any inherited amount above $25,000. A trusted employee named in your will. A long-term business partner. A close friend who is not a blood relative. All of them face the same rate. The exemption threshold is $25,000, not $250,000.
Kentucky and New Jersey
Both states carry top marginal inheritance tax rates of 16% for certain beneficiary classes. New Jersey’s rate structure runs from 11% to 16%, depending on the inheritance size and the heir’s relationship to the deceased. Spouses and direct descendants are exempt. Everyone outside that circle pays.
These taxes create a specific trap for family businesses and farms. They are typically asset-rich and cash-poor. An heir who inherits a working farm or a family business cannot write a check for 15% of the appraised value without liquidating part of what they just inherited. The tax forces a liquidation decision at the worst possible time.
The retirement paradox: the largest check does not win
The 2026 CareScout study ranked all 50 states on retirement quality, factoring in tax burden, cost of living, healthcare access, and senior health outcomes. The results expose a core misconception: the state that delivers the largest benefit check is ranked dead last.
Wyoming, ranked #1
No personal income tax. The nation’s lowest rate of multiple chronic conditions among Medicare beneficiaries at 44%. Moderate cost of living. Average Social Security income of $28,082. Real trade-offs exist: limited physician access, extreme weather, and sparse population. But when it comes to financial metrics that determine how long retirement savings last, Wyoming is hard to beat.
New Jersey, ranked #50
The highest average Social Security benefit in the country is $29,562 per year. That is $1,480 more per year than in Wyoming. Then consider what the surrounding tax structure takes back.
New Jersey’s top personal income tax rate is 10.75%, the fourth highest in the country, behind California (13.3%), Hawaii (11%), and New York (10.9%). The state’s effective property tax rate of 1.675% is the highest of any state in the country. Layer in the nation’s most expensive cost of living, and the $29,562 Social Security benefit quickly becomes irrelevant.
The best retirement state sends a check you actually get to keep.
The $15 million federal cliff and the state-level reality
The One Big Beautiful Bill Act, signed July 4, 2025, permanently raised the federal estate tax exemption to $15 million per person ($30 million for married couples), effective January 1, 2026, with inflation adjustments beginning in 2027. This removed a large number of estates from federal taxation entirely. It did not touch the states.
Oregon
Oregon’s state estate tax exemption remains at $1 million, unchanged for over a decade. A family home and a retirement account in Portland can clear that number. The state estate tax rate starts at 10%.
Massachusetts
Massachusetts raised its estate tax exemption to $2 million in 2023 and left it there, unindexed for inflation. Estates above $2 million are subject to state taxation. The state also charges short-term capital gains at 8.5% and taxes long-term gains on collectibles at a 12% gross rate, though a 50% deduction applies, resulting in an effective rate of 6%. Add the 4% millionaire’s surtax on income above approximately $1.08 million and the effective short-term rate can reach 12.5%.
Washington
Washington’s 2026 state estate tax exemption is $3.076 million per person. The rate starts at 10% and reaches 35% at the top marginal bracket on values exceeding $9 million above the exemption. Combine the federal rate and Washington’s rate on a large estate, and the combined marginal tax can approach 61%. Legislation is expected to return Washington’s top rate to 20% by mid-2026, but estates that transfer before that window closes will be subject to the 35% rate.
State-level “death taxes” typically generate a modest share of total state revenue. Their primary effect is behavioral: they push high-net-worth individuals out of state. Capital flight then narrows the tax base, often leading to higher taxes for those who stay.
The audit you haven’t run
The most expensive relocation is the one that was not fully audited before the moving van was hired.
A state without an income tax has simply chosen a different method of collection. Whether it is a 9% combined grocery tax in an Alabama county, a 15% inheritance tax in Nebraska, or a 35% marginal estate tax in Washington, the mechanisms differ. The result is the same.
If you are between 55 and 70, the clock is specific. Over the next five years, more than $13 trillion will transfer between generations. You are on both sides of that flow, possibly inheriting from parents, definitely deciding what your own children and grandchildren will receive. The state you retire to determines how much survives both transfers.
Before committing to a destination, run the complete tax map. Income tax is one line. The rest are property, sales, capital gains, inheritance, and estate taxes. Skip any of them and the retirement you planned on paper will not match the one you live.
