Under the US Constitution, each state has control over many of the laws and regulations within its own borders. Consequently, laws vary widely among states, with some states allowing open containers of alcohol in vehicles and others prohibiting raw milk sales and demanding helmets for bicycle riders.
Freedom in the 50 States: An Index of Personal and Economic Freedom, a paper published by the Mercatus Center at George Mason University explores the idea of personal and economic freedom in each of the 50 states. The paper defines individual freedom as "the ability to dispose of one's own life, liberty, and justly acquired property however one sees fit, so long as one does not coercively infringe on another individual's ability to do the same."
States were rated on economic freedom and personal freedom. Economic freedom covers government spending and taxation, labor regulations, eminent domain, occupational licensing, etc. Personal freedom includes things like helmet and seatbelt laws, home-school regulations, gun laws, and alcohol and marijuana regulations.
According to the paper, the top five libertarian states are:
1. New Hampshire
New Hampshire scores higher on economic freedom than personal freedom, but does have the personal freedom distinction of being the only state with no seat belt law for adults and no motorcycle helmet law. While New Hampshire has the highest overall freedom score, it doesn't take top honors in either the economic (#2, behind South Dakota) or personal rankings (#13).
If there are bonus points for enthusiasm, though, New Hampshire gets them. According to the website of the Free State Project, the organization is actively recruiting "20,000 liberty-loving people" to move to the state.
Colorado also ranks better on the economic freedom scale than on the personal freedom scale. Tax burdens are low and the state economy is the most decentralized in the nation. Colorado also has low "sin taxes" on alcohol and cigarettes, but loses personal freedom points by having some of the most extreme smoking bans in the country. It regains some of those lost points, however, by being one of only 12 states to decriminalize low-level marijuana possession.
It doesn't count in the rankings, but for what it's worth, Colorado is the birthplace of the Libertarian Party. It was formed on December 11, 1971 after David Nolan and several friends expressed their displeasure with President Nixon, the Vietnam War, and the Republican Party's fiscal policy.
3. South Dakota
The third freest state, South Dakota ranks #1 in economic freedom. The state's personal freedom ranking is significantly lower at #24, although South Dakota is relatively gun-friendly and allows several kinds of gambling.
It's the highly-controlled private schools and a high rate of arrests for "victimless crimes" that damage the state's personal freedom score.
Idaho scores higher in personal freedom than any of the three states above at #8. Why? Idaho does not allow sobriety checkpoints, has permissive gun control laws, requires only nine years of mandated schooling, and has virtually no regulation on private and home schooling. It also scores well on economic freedom, coming in at #4.
Texas is the highest-scoring of the top five in personal freedom (#5), thanks to policies like low alcohol regulation, sobriety checkpoint prohibition, and broad educational freedom.
Texas also ranks well on the economic freedom scale. It has one of the smallest state governments in the country and low taxes. Further, the Lone Star State is the only state not to require employers to contribute to workers' compensation coverage.
While Alaska did not make the top five, it does deserve a brief mention here. On personal freedom alone, Alaska beats out the top five and holds the #1 position, but over 25% of the state's workforce is employed by state or local government, damaging its economic freedom score.
The Lowest Ranked
50. New York
49. New Jersey
48. Rhode Island
Most of these states share rigid gun control, high taxes, strict labor laws, and smoking bans, but are relatively liberal when it comes to same-sex unions and marijuana laws (except Rhode Island, which allows a maximum life sentence for severe marijuana-related offenses). Only New York ranks in the bottom five for both personal (#48) and economic (#50) freedom, which gives it the lowest overall score by quite a margin.