Alaska Has No State Income Tax and No State Sales Tax

Alaska has no individual income tax and no statewide sales tax. It is the only state with neither. So there is no Alaska answer to how much of military retired pay the state takes. There is no exemption, no cap, no age test, no years-of-service requirement and no form, because there is no return. Military retired pay, Survivor Benefit Plan annuities, VA disability compensation, VA pension, Dependency and Indemnity Compensation, Thrift Savings Plan withdrawals, drill pay, active duty pay and social security are all outside the state's reach. That deserves an entry rather than silence. A veteran comparing states will search for an Alaska military retirement exemption, find no statute, and can reasonably conclude the pay is taxed. The opposite is true. There is no state estate tax and no inheritance tax either. Three things qualify the picture. Local sales taxes exist and in places are substantial. Municipalities and boroughs may levy their own, rates commonly run to several percent, and some communities layer a borough tax on a city tax. There is no statewide veterans exemption from any of them, and whether a local exemption exists is an ordinance question. A veteran should not read "no sales tax in Alaska" as meaning no sales tax where they live. Property tax is the tax that actually reaches Alaska veterans, which is why AS 29.45.030 is the most valuable entry in this file for the eighteen municipalities that levy one. And the Permanent Fund Dividend runs the other way: the state pays residents an annual dividend rather than collecting from them. It is federally taxable income even though Alaska does not tax it, so a veteran who owes no Alaska tax may still owe federal tax on the dividend, and a dividend paid to a child is reportable by the parent. One more consequence worth stating. Because there is no Alaska income tax return, Alaska has no mechanism for an income-tax-based veterans credit of the kind most states in this catalog use. Every Alaska benefit here is a direct payment, a fee waiver, a property tax exemption, a discount or a preference. There is nothing to deduct.