Residents in high-tax states have seen just how unfairly the Trump Tax Plan has targeted them.
That realization has caused many to talk about and consider moving from high-tax to lower-tax states. Nearly all states have an income tax, ranging from 1-13%. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming are the exceptions because they do not tax residents’ incomes. Additionally, residents of Tennessee and New Hampshire are only taxed on income earned from dividends.
Budgets vary state-by-state, but as you can imagine, states are unable to properly function without taxes. Each one must receive revenue by other means or other taxes. Think things like sales or property taxes. That being said, states that do not tax income can be quite attractive to retirees or folk with big incomes.
Here are the seven states with no income taxes (in alphabetical order):
Deriving much of its budget from petroleum resources, Alaska is one of the few states without income and sales taxes. That has allowed the state to pay its citizens a five-figure dividend, every year since the early 80s, from the Alaska Permanent Fund.
It literally sounds like people are being paid to live there. After all, it ranks near the bottom (48 out of 50) as the most populous state in America.
The land of retirement communities and hanging chad (2000 election joke) does not have a personal income tax. Warm weather and endless beaches, plus no state income tax, makes it easy to understand why Florida has become popular with retirees.
Depending on where you live in Florida, you will have to pay a sales tax between six and eight percent. Property taxes will also be owed if you own your home.
Nevada is without the corporate income and state income taxes. That has helped make the state popular with both business owners and retirees. It should come as no surprise that a majority of the state’s revenue is derived from tourism, special taxes on gambling and mining, as well as a sales tax rate of 4.6%.
Residents of South Dakota will not have to pay personal income taxes at the state level. Unlike Nevada, South Dakota does have a corporate income tax. Most of its revenue comes from sales and property taxes. Sales taxes are 4.5-6.5%, depending on where in the state you are shopping.
Things are supposed to be bigger in Texas, but state income tax rates are an exception. This state does not levy an income tax on its residents. Further, the state’s constitution restricts the passage of an individual income tax and for what those proceeds can be applied. While Texas has a series of corporate income taxes, most revenue comes from sales and property taxes.
Sales taxes currently range 6.25-8.5%, depending on the municipality. Property taxes are bigger in Texas and average around 1.86% of a home’s value, per year.
Lacking a state income tax has helped cities like Seattle grow exponentially over the past few decades. The state makes up for that lost revenue with a gross receipts tax on almost all businesses paired with a higher-than-average sales tax. That could be as high as 10.4% in certain municipalities. Ouch.
Wyoming derives income from sales and property taxes, along with a variety of state fees. It does not tax the income of its residents nor does it tax the corporate income of Wyoming business owners.
I will tell you that writing this post made me slightly depressed. As someone born and raised in California, a state with high income taxes (up to 13.3%), big sales taxes (9.50% here in Los Angeles), and high real estate values but relatively low property taxes (thank to prop 13), it made me realize how much more money I have to pay to live here compared to residents of other states. While the Trump Tax Plan is horrible for Californian homeowners like myself, I will not be moving out of the state. However, it is easy to understand why people are considering a move to lower-tax states.
If you are considering a move driven by tax rates, take into account the full cost of living comparisons. Equally important will be understanding how your income, not to mention your family and friends, will be affected by a move. Where you will be happiest? Income taxes are just part of the equation.
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