How much you pay in taxes, particularly if you are living on a fixed income, can have a big impact on how much you have left over to spend.

Pensions. All 50 states and the District of Columbia determine their own tax treatment of retirement income. Only three states — Illinois, Mississippi and Pennsylvania — exempt virtually all retirement income from state income taxes. That includes public and private pension benefits, 401(k) and other retirement-plan distributions, and IRA withdrawals.

Seven states — Alabama, Hawaii, Kansas, Louisiana, Massachusetts, Michigan and New York — fully exempt government and military pensions from state income taxes but don't fully exempt private pensions. And seven other states — Delaware, Georgia, Minnesota, New Mexico, Utah, Virginia and West Virginia — provide a partial exemption for retirement income, regardless of the source.

Five states are particularly tough on retirees. Not only do they fully tax most pensions and other retirement income, but most of them also have fairly high top tax rates, says Tom Wetzel, president of the Retirement Living Information Center. Those states, with their top tax brackets for 2008, are California (9.3 percent), Connecticut (5 percent), Nebraska (6.8 percent), Rhode Island (9.9 percent) and Vermont (9.5 percent). For a free state-by-state tax guide, go to

Sales taxes. If you're considering a move to another state, don't forget to take into account sales taxes that can nick your wallet every time you open it. Some states exempt food and medicine; others tax every dime you spend. Five states — Alaska, Delaware, Montana, New Hampshire and Oregon — have no state sales taxes. At the other extreme, five states — Indiana, Mississippi, New Jersey, Rhode Island and Tennessee — each have a state sales tax of 7 percent, the highest in the nation. Last year, South Carolina raised its statewide sales-tax rate from 5 percent to 6 percent. In 2008, Maryland went from 5 percent to 6 percent, and Indiana from 6 percent to 7 percent.

Eight states impose a sales tax only at the state level: Connecticut, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan and Rhode Island. But the retail-tax pain doesn't always stop at the state level. In many states, cities and other local governments can slap their own sales tax on top of the state levy, and they're doing so in record numbers.

In 2007, 485 U.S. cities either increased their sales-tax rate or initiated a new sales tax. That was the largest annual expansion in the past four years, according to the annual sales-tax-rate study by Vertex, of Berwyn, Pa.

Mary Beth Franklin is a senior editor at Kiplinger's Personal Finance magazine. Send your questions and comments to [email protected].