Change States, Lower Your Taxes?

/ BY / Personal Finance

Do you ever wonder if you'd be better off tax-wise if you lived in a different state? The thought of living in a tax-friendlier location can be tempting when you're struggling to pay the state and local taxes that you owe.

While you won't get out from under the federal tax burden by moving, you may actually be able to save some money by becoming a resident of a different state.

We checked around to see which states are considered the highest and lowest when it comes to taking their share of your money. The rankings are dependent on how the organizations figured the total tax bill, but you should get some idea of what states to choose—and which to avoid—if you’re intent on lowering your tax bill.

MSN/Bloomberg

Bloomberg looks at four categories when determining its highest and lowest tax states: income tax, sales tax, property tax per capita and inheritance tax. (The inheritance tax portion probably won’t affect you unless you have a substantial estate to leave when you die.)

Most expensive (in descending order):

  1. Connecticut
  2. New Jersey
  3. New York
  4. Massachusetts
  5. Maryland

Least expensive (in ascending order):

  1. Mississippi
  2. South Carolina
  3. Tennessee
  4. Alabama
  5. Alaska

The Tax Foundation

This non-profit, non-partisan tax research organization uses a different method to calculate its tax burden rankings. It takes the total amount of state and local taxes paid by state residents to both their own and other (non-federal) governments, and then divides these totals by each state’s total income.

Using this method, the Tax Foundation can capture the impact of commuter taxes, taxes on second homes and similar taxes that residents of one state might have to pay to another state.

State and Local Tax Burdens as a Percentage of State Income (as of 2010, the last year rankings are available)

Highest:

  1. New York (12.8%)
  2. New Jersey (12.4%)
  3. Connecticut (12.3%)
  4. California (11.2%)
  5. Wisconsin (11.1%)
  6. Rhode Island (10.9%)
  7. Minnesota (10.8%)
  8. Massachusetts (10.4%)
  9. Maine (10.3%)
  10. Pennsylvania (10.2%) – Maryland and Illinois also have 10.2% tax burdens

Lowest (in ascending order):

  1. Alaska (7.0%)
  2. South Dakota (7.0%)
  3. Tennessee (7.7%)
  4. Louisiana (7.8%)
  5. Wyoming (7.8%)
  6. Texas (7.9%)
  7. New Hampshire (8.1%)
  8. Alabama (8.2%)
  9. Nevada (8.2%)
  10. South Carolina (8.4%) – Arizona and New Mexico also have 8.4% tax burdens

Where do you want to live?

Do you see the trend? If you want to avoid high taxes, your best bet is to keep away from the East Coast and the Mid-Atlantic states. If you want to save money on your taxes, you’ll point the moving van south or to a less populated state.

Of course, one thing that these rankings don’t take into account is the services that a state funds through its taxes. States with higher tax burdens may also have better roads, better schools and libraries and offer a better quality of life overall.

It also may be more difficult in states with lower taxes to find jobs that pay salaries equivalent to what’s offered in higher taxed states. There can also be taxes that aren’t accounted for in some of these rankings. (Some states, for example, mandate that employers withhold an “occupational privilege tax” from your paycheck.)

Although no one likes paying taxes, there’s no place that you can go to avoid paying them altogether. So if you do decide to relocate to a lower tax state, make sure that you have a well-informed estimate of what your tax burden will be before you call the moving company.

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