Overview of Alaska’s Tax System
Alaska has no state income tax. Alaska’s tax rates include federal income tax, property tax, sales tax, and various fees. Alaska does have a Permanent Fund Dividend (PFD) program distributing oil revenue annually to eligible residents. However, income tax rates alone don’t determine overall tax burdens.
Specific Taxes in Alaska
What kind of taxes do you pay in Alaska? Alaska does not levy a personal income tax or a sales tax. Consequently, Alaska generates the bulk of its tax revenue from other taxes. The state derives its constitutional authority to tax from Article IX of the state constitution.
- Local Taxes: The "typical" sales tax rates within Alaska range from 2%-5%. Other types of local taxes levied include raw fish taxes, hotel/motel "bed" taxes, severance taxes, liquor and tobacco taxes, gaming taxes and fuel transfer taxes.
- Payroll Taxes: As a part of payroll taxes, Alaska employers have to pay the Alaska unemployment insurance tax, also known as the Employment Security Tax.
- Property Tax Breaks for Retirees: Homeowners 65 and older (or surviving spouses 60 and older) are exempt from municipal taxes on the first $150,000 of assessed value of their property.
- Gas Tax: Alaska’s gas tax is only $0.09 per gallon, making it one of the states with the lowest gas taxes.
- Cigarette Tax: Smokers in Alaska pay a state cigarette tax of $2.00 per pack of 20 cigarettes.
Alaska doesn’t levy an individual state income tax, state sales tax, franchise tax, business personal property tax, or withholding tax. Small business owners may be responsible for the corporate income tax and the unemployment insurance tax, as well as any industry-related and local taxes.
Alaska’s Tax Friendliness
Is Alaska the most tax friendly state? Alaska is considered one of the most tax-friendly states due to its absence of state income tax and generally low sales taxes. Residents are exempt from state paperwork due to no statewide income or sales taxes, though they are required to file federal tax returns.
- Tax-Friendly States: Other top tax-friendly states are Wyoming, South Dakota, Nevada, Florida, and Tennessee.
- Local Sales Tax: Local sales taxes in Alaska can range from 0% to 7.5%.
Alaska has the lowest overall tax burden at 5.4%, followed by other states with light tax levels such as Tennessee, Wyoming, South Dakota, and Nevada. Anchorage, Alaska has no local sales tax, and the state benefits from oil, gas, and mineral revenues, allowing for low income and sales taxes.
Other tax-friendly perks in Alaska include no taxes on Social Security, pensions, inheritance, or property over $150,000 for seniors. Alaska does tax corporations, employment, property under $150,000, and has some industry-related taxes.
The absence of income tax in Alaska contributes to its ranking as the most tax-friendly state overall, with Wyoming and Tennessee also offering low tax burdens.