Hawaii
- Overall Rank 43
- Corporate Tax Rank 29
- Individual Income Tax Rank 46
- Sales Tax Rank 37
- Property Tax Rank 19
- Unemployment Insurance Tax Rank 39
2027 State Tax Competitiveness Index -- Executive Summary
from Tax Foundation, Nov 5, 2026 (excerpts)
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.[1]
The 10 lowest-ranked, or worst, states in this year’s Index (include) Hawaii (43rd)…
The states in the bottom 10 tend to have a number of issues in common: complex, nonneutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the highest-rate corporate income tax in the country, and has one of the highest-rate individual income taxes. Additionally, the state levies an inheritance tax and maintains some of the nation’s worst-structured individual income taxes….
Understanding the Index and Tax Competition
Tax competition is a little like WAR—not conflict, but Wins Above Replacement. The term comes from baseball, where it is intended as a sabermetric statistic to measure how many more wins a team can claim due to a specific player above the amount that would be generated by a replacement-level player. It’s much the same way in public finance: a well-structured tax code won’t make the Wyoming Basin a metropolis, nor will poor tax structure make Manhattan a ghost town. But tax structure does play a role in a state’s economic successes or failures, and often a substantial one. Every state can benefit from a simple, neutral, transparent, pro-growth tax structure….
Hawaii / Rank
- 2020 -- 31
- 2021 -- 37
- 2022 -- 38
- 2023 -- 39
- 2024 -- 43
- 2025 -- 41
- 2026 -- 42
- 2027 -- 43
Notable Changes in This Year’s Index
Hawaii
In May 2026, Hawaii lawmakers adopted a new, additional tax bracket with a rate of 13 percent on residents with incomes over $500,000 ($1 million for married filers). While this change does not take effect until 2027, Hawaii can expect to see a drop in both its individual income tax rank and overall rank in coming years, much like Maine has seen in the current Index.…
Indexation of the Tax Code. For states that have multiple-bracket corporate income taxes, it is important to index the brackets for inflation. That prevents de facto tax increases on the nominal increase in income due to inflation. Put simply, this “inflation tax” results in higher tax burdens on taxpayers, usually without their knowledge or consent. All 13 states with graduated corporate income taxes fail to index their tax brackets: Alaska, Arkansas, Connecticut, Hawaii, Iowa, Kansas, Maine, Mississippi, New Jersey, New York, North Dakota, Oregon, and Vermont….
Individual Income Tax Rate
Top Marginal Tax Rate. California has the highest top income tax rate of 13.3 percent. Other states with high top rates include Hawaii (11.0 percent), New York (10.9 percent), New Jersey (10.75 percent), Oregon (9.9 percent), Washington (9.9 percent on capital gains), Minnesota (9.85 percent), Massachusetts (9 percent with an additional 0.88 percent payroll tax), and Maine (9.15 percent)….
Number of Brackets. States with flat income tax systems essentially have one bracket and score highly on this variable. On the other end of the spectrum, Hawaii scores worst with 12 brackets, followed by California and Maryland with 10 brackets, New York with 9 brackets, and Connecticut, Missouri, and New Jersey with 7 brackets….
Individual Income Tax Base
States define taxable income differently, with some creating greater impediments to economic activity than others. The base subindex examines 13 variables, including double taxation, indexation of tax provisions, the marriage penalty, and filing and withholding thresholds, among other factors.
The states with no individual income tax achieve perfect neutrality. Among the remaining states, Louisiana, Illinois, Missouri, Utah, Rhode Island, and Nebraska have the best scores, avoiding many problems with the definition of taxable income that plague other states. Meanwhile, states where the tax base is found to cause an unnecessary drag on economic activity include New Jersey, New York, California, Hawaii, Ohio, Pennsylvania, Virginia, Mississippi, Connecticut, and Maryland….
Filing and Withholding Thresholds. This variable assesses states’ individual income tax filing and withholding requirements for nonresidents who conduct a limited amount of work in the state. States that score well on this variable provide meaningful filing and withholding relief to most nonresidents who spend a limited amount of time working in the state….Arizona and Hawaii receive perfect scores for withholding, but their lack of a meaningful filing threshold yields a total score of 5.00. …
Sales, Use, and Excise Taxes
Sales tax makes up 21.7 percent of each state’s Index score….
States that create the most tax pyramiding and economic distortion, and therefore score the worst, are states that levy a sales tax that generally allows no exclusions for business inputs.[31] Hawaii, New Mexico, South Dakota, and Washington are examples of states that tax many business inputs. The ideal base for sales taxation is all goods and services at the point of sale to the end-user….
read … 2027 State Tax Competitiveness Index | Full Report