Not All Income Tax-Free States Are Alike

12/16/14
 
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from NCPA,
12/16/14:

Seven American states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas and Wyoming — lack a personal income tax, but the taxing similarities between them stop there. A new report from NCPA Senior Fellow Pam Villarreal details how sales and property tax rates vary among the no-income-tax states and how some may be better off by moving from one state to another.

When a state lacks an income tax, it tends to make up that lost revenue in two major ways: sales taxes and property taxes. Alaska and New Hampshire do not have a sales tax, but South Dakota and Wyoming impose 4 percent tax rates while Florida’s rate is 6 percent, Texas’ rate is 6.25 percent and Nevada’s rate is 6.85 percent. Property tax rates also vary wildly among the no-income-tax states, ranging from a median 0.58 percent rate in Wyoming to 1.81 percent in Texas and 1.86 percent in New Hampshire.

Using the NCPA’s State Tax Calculator, Villarreal compared consumers in the no-income-tax states. For example:

– While Texas and Florida have almost the same state/local sales tax rate, Texas’ property tax rate is almost twice that of Florida. As such, a 40-year-old Florida couple earning $150,000 annually and owning a $200,000 home would lose $181,000 over a lifetime by moving to Texas.
– Similarly, New Hampshire’s property tax rate (1.86 percent) is much higher than Alaska’s (1.04 percent). A 30-year-old individual earning $75,000 annually moving to Alaska from New Hampshire would gain $14,418 over a lifetime if he is a $1,200 per month renter and would gain $125,226 over his lifetime if he is a $150,000 homeowner.
– Nevada and Florida have very similar property tax rates, but Nevada’s state/local sales tax rate is 7.94 percent, compared to 6.63 percent in Florida. A 40-year-old Florida couple earning $150,000 annually and owning a $200,000 home would lose $19,438 over a lifetime by moving from Florida to Nevada.

Anyone can use the NCPA’s State Tax Calculator to see how their state’s tax system stacks up against its neighbors, calculating a person’s lifetime gains — or losses — from moving to another state.

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