State Tax Competitiveness--Hawaii Ranks 41st

Tax Foundation’s State Tax Competitiveness Index

from Tax Foundation, Oct 31, 2025

The Tax Foundation’s State Tax Competitiveness Index enables policymakers, taxpayers, and business leaders to gauge how their states’ tax systems compare. While there are many ways to show how much state governments collect in taxes, the Index evaluates how well states structure their tax systems and provides a road map for improvement.

The 10 best states in this year’s Index are:

1. Wyoming
2. South Dakota
3. New Hampshire
4. Alaska
5. Florida
6. Montana
7. Texas
8. Tennessee
9. Idaho
10. Indiana

The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. South Dakota and Wyoming have no corporate or individual income tax; Alaska and New Hampshire have no individual income or state-level sales tax; Florida, Tennessee, and Texas have no individual income tax; and Montana has no sales tax.

This does not mean, however, that a state cannot rank well while still levying all the major taxes. Idaho and Indiana, for example, levy all the major tax types, as do all the other states that rank 11th to 16th: North Dakota, North Carolina, Missouri, Arizona, Utah, and Michigan.

The 10 lowest-ranked, or worst, states in this year’s Index are:

41. Hawaii
42. Vermont
43. Massachusetts
44. Minnesota
45. Washington
46. Maryland
47. Connecticut
48. California
49. New Jersey
50. New York

The states in the bottom 10 tend to have a number of issues in common: complex, nonneutral taxes with comparatively high rates. …

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Hawaii 41st Overall

Hawaii’s tax code is complex and includes all major tax types, placing the state among the bottom 10 on the Index. Hawaii has one of the most complex, least neutral, and most progressive individual income tax systems in the nation, with 12 tax brackets, a top marginal rate of 11 percent, a very low standard deduction, and, until recently, no adjustment for inflation. It does, however, provide favorable treatment of capital gains income. Conversely, Hawaii caps small business expensing under Section 179 at $25,000, whereas most states allow $1 million.

Hawaii’s corporate income tax is also progressive (which is unusual), with a top rate of 6.4 percent. The state does not index tax brackets for inflation, does not allow full expensing, and has a throwback rule, which exposes Hawaii-based businesses to tax on certain income earned in other states.

The state’s sales tax, known as the general excise tax (GET), has a relatively low rate of 4 percent but an extremely broad base that includes virtually all business inputs, both goods and services, leading to significant tax pyramiding. Hawaii also allows counties to impose local option sales taxes, generally capped at 0.5 percent.

Hawaii has the highest estate tax rate in the nation at 20 percent, with an exemption of $5.49 million. The state’s property tax system is generally competitive, and particularly features low rates on owner-occupied property, though some counties have split roll property taxes, where commercial properties are taxed more heavily than residential ones. Some counties also impose assessment caps on homestead properties, which are less efficient than levy limits….

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