Last Updated: April 2026
Arizona made a dramatic move in 2022-2023 that transformed its competitive position among US states: it reduced its income tax to a flat 2.5% rate — one of the lowest flat income tax rates in the United States, second only to North Dakota's top rate reduction. Combined with Maricopa County's remarkably low effective property tax rate of approximately 0.6%, Arizona offers a compelling combination of low income tax and low property tax that no comparable state can match. Only Texas and Florida beat Arizona on income tax (by eliminating it entirely), but Texas's property taxes (1.6-2.5%) are dramatically higher than Arizona's.
Phoenix, as Maricopa County's economic center and Arizona's capital, has become the primary destination for the California-to-Southwest migration. Maricopa County is the fastest-growing county in the United States, adding over 200 people per day. The income tax saving — approximately $10,780 at $100,000 income for a California-to-Arizona move — combined with dramatically lower housing costs, has made Phoenix the most logical relocation destination for California workers who want to retain West Coast accessibility while dramatically reducing their tax burden.
Arizona's income tax overhaul was one of the most significant state tax reductions in the US in recent years. Before 2021, Arizona had a graduated income tax topping at 4.5%. In 2021, Arizona voters passed Proposition 208 (the Invest in Education surcharge), which would have added a 3.5% surcharge on incomes over $250,000 — taking the top rate to 8%. However, the Arizona Supreme Court ruled Prop 208 unconstitutional in 2022.
Simultaneously, in 2022, Arizona voters approved Proposition 132, which requires a supermajority of 60% for any future ballot measure imposing a new tax — making tax increases through ballot initiative significantly harder. The Arizona legislature also passed a flat tax consolidation: all taxpayers pay a flat 2.5% rate starting January 1, 2023. For comparison: California's top rate is 13.3%, New York's is 10.9%, Colorado is 4.4%, Utah is 4.65%, and Indiana is 3.05%. Arizona's 2.5% is exceptional. At $100,000 income, Arizona income tax is just $2,500 — versus $9,280 in California or $6,050 in New York State.
Arizona's property tax system assesses residential property at a limited cash value — a figure that cannot increase by more than 5% per year regardless of market appreciation. Residential property is then assessed at 10% of limited cash value for tax calculation purposes. This dual-limit system (5% annual cap on limited cash value + 10% assessment ratio) creates effective property tax rates that are extraordinarily low compared to Texas or Illinois.
For a $500,000 Phoenix home: Limited cash value might be approximately $400,000 (depending on purchase date and market history). Assessed value = $400,000 × 10% = $40,000. At Maricopa County's combined primary tax rate of approximately $1.50 per $100 (including all overlapping jurisdictions), annual property tax is approximately $600. Wait — that seems extremely low. Including secondary tax rates (bond levies for schools, community colleges, flood control, etc.), the combined effective rate on market value averages approximately 0.55-0.65%. On a $500,000 home at 0.60%, that's approximately $3,000 per year — dramatically lower than Texas ($10,000+) or Illinois ($9,000+) on a comparable home.
Arizona's consumption tax is called the Transaction Privilege Tax (TPT) rather than a sales tax — a technical distinction that matters. The TPT is legally a tax on the privilege of doing business in Arizona, imposed on the seller rather than the buyer (unlike most states' sales taxes). In practice, sellers pass the cost to buyers, making it function identically to a sales tax. Arizona's state TPT rate is 5.6% — lower than most surrounding states. Phoenix adds 2.5% and Maricopa County adds 0.5%, bringing the combined rate to approximately 8.6%.
Arizona exempts food for home consumption (groceries) from the state TPT — only the city portion may apply, bringing grocery rates to approximately 2.5% in Phoenix (city only, no state). Prescription drugs are fully exempt. The TPT's business-level imposition means remote sellers and marketplace facilitators also collect it. Arizona's 5.6% state TPT rate is lower than California (7.25%), Illinois (6.25%), or Washington (6.5%) — another dimension of Arizona's tax competitiveness.
The California-to-Arizona migration is the dominant demographic and economic story of the Phoenix metropolitan area. From 2020 to 2024, California-born residents became the single largest origin group among Arizona newcomers. The tax math is compelling:
| Income Level | California Tax | Arizona Tax | Annual Saving |
|---|---|---|---|
| $75,000 | ~$5,550 | $1,875 | ~$3,675 |
| $100,000 | ~$7,280 | $2,500 | ~$4,780 |
| $150,000 | ~$13,500 | $3,750 | ~$9,750 |
| $250,000 | ~$25,700 | $6,250 | ~$19,450 |
| $500,000 | ~$56,000 | $12,500 | ~$43,500 |
At $150,000 income, a California-to-Phoenix mover saves approximately $9,750 per year in state income tax alone. Combined with lower housing costs (median Phoenix home ~$400,000 vs Bay Area median ~$1.3 million), the financial impact of moving from California to Phoenix can generate hundreds of thousands in wealth over a decade. Companies including TSMC (building its $65 billion chip plant in Phoenix's northern suburbs), Intel, Boeing, and hundreds of tech firms have added to the employment pull.
For a single professional earning $150,000 and owning a $500,000 home in Phoenix:
| Tax Type | Phoenix, AZ | Los Angeles, CA | New York City |
|---|---|---|---|
| State income tax | $3,750 | ~$13,500 | ~$10,800 |
| City income tax | $0 | $0 | ~$5,628 |
| Property tax ($500K) | ~$3,000 | ~$5,250 (new buyer) | ~$8,500 |
| Sales tax ($35K spend) | ~$3,010 | ~$3,588 | ~$3,115 |
| Federal income tax | ~$29,900 | ~$29,900 | ~$29,900 |
| Total (approx) | ~$39,660 | ~$52,238 | ~$57,943 |
Phoenix's total burden is approximately $12,578 less than Los Angeles and approximately $18,283 less than NYC at this income and home value. Phoenix's combination of low income tax (2.5%) and very low property tax (~0.6%) creates the lowest overall burden among major US metros for most income earners — only Nashville (no income tax, ~0.73% property tax) and Denver (4.4% flat, 0.5-0.7% property tax) come close. Texas metros (no income tax, but 1.6-2.5% property tax) are broadly comparable to Phoenix for lower-income earners but fall behind for high earners due to the property tax offset.
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Get Matched with a Local CPA →Arizona's flat 2.5% income tax took effect for tax years beginning January 1, 2023. The transition involved legislation passed by the Arizona legislature and signed by Governor Doug Ducey in 2022, which phased the graduated tax structure into a single flat rate. Tax year 2022 used a transitional flat rate of 2.98% for most taxpayers; the permanent 2.5% rate applies from 2023 onwards. Arizona residents filing for 2023 and later years use the single 2.5% flat rate on all taxable income.
Arizona's property tax system has two key features that keep effective rates low: (1) Residential property is assessed at only 10% of its limited cash value (rather than 100% of market value as in Texas), dramatically reducing the taxable base before the tax rate is applied; and (2) The limited cash value cannot increase by more than 5% per year, protecting homeowners from rapid appreciation spikes. Texas assesses at full market value annually with no limit, and school district levies are the primary driver of Texas's high rates. Arizona's lower reliance on property tax for school funding (the state funds more of K-12 education than Texas does) also contributes to lower local levies.
The Arizona TPT is legally structured as a tax on businesses for the privilege of conducting business in Arizona, imposed at the seller level rather than the buyer level. In all practical respects it functions identically to a sales tax — sellers include the cost in prices paid by consumers. The distinction matters for remote sellers and tax compliance purposes but not meaningfully for consumers. Arizona's state TPT rate of 5.6% is lower than California (7.25%), Illinois (6.25%), or Washington (6.5%), contributing to Phoenix's overall tax competitiveness even though city/county additions bring the combined Phoenix rate to ~8.6%.
No. Neither Phoenix nor any other Arizona city or county may levy a personal income tax on residents or workers. Arizona state law prohibits local income taxes. The only income tax Arizona residents pay is the state flat 2.5% rate. This is a contrast with Ohio (700+ municipalities with income taxes), Pennsylvania (EIT in nearly every municipality), and Indiana (all 92 counties levy income tax). Arizona's income tax is cleaner and simpler than most Midwestern states.
Arizona is excellent for retirees. Arizona exempts Social Security income from state income tax entirely. Up to $2,500 of military retirement pay is exempt (increasing in future years under recent legislation). The flat 2.5% rate on other retirement income (pensions, 401(k)s, IRAs) is very low by comparison to most states with income tax. Arizona's low property tax rate means longtime homeowners face modest and predictable property tax bills. The warm, dry climate is also attractive for health reasons. Arizona ranks among the top 5 most tax-friendly states for retirees when income tax, property tax, and retirement income treatment are combined.
TSMC's $65 billion chip manufacturing investment in north Phoenix (Chandler-area) is the largest private investment in Arizona history. The factory is expected to employ 4,500+ high-wage workers. The economic impact includes: higher home values in north Phoenix suburbs, increased property tax revenue for Maricopa County and applicable school districts, and job creation that sustains Arizona's income tax revenue base. For residents, TSMC's presence has somewhat increased competition for housing in the north Phoenix corridor. Arizona negotiated significant property tax incentives and sales tax exemptions for TSMC's equipment purchases as part of the deal — a reminder that advertised tax rates and actual taxes paid by large businesses can differ significantly due to economic development abatements.
Nevada has no state income tax at all — similar to Texas and Florida. For a high earner choosing between Phoenix and Las Vegas, Nevada's zero income tax beats Arizona's 2.5%. At $200,000 income, the difference is $5,000 per year. However, Nevada's property taxes are comparable to Arizona's (approximately 0.6-0.8% effective rate), so the property tax advantage doesn't offset the income tax difference. Nevada's lack of a personal income tax reflects its reliance on gaming and tourism revenue rather than income taxes. For most workers, Arizona's 2.5% is very competitive but not quite as good as Nevada's zero. Phoenix's larger job market, healthcare infrastructure, and quality of life often tip the balance in favor of Arizona despite the small income tax.