Ditching income taxes sounds like a dream for many Americans, and the nine states offering that see their fair share of interest.
Although you may initially keep more of your paycheck, the story doesn’t end there. These states often make up for lost revenue by increasing other costs, which are climbing fast.
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Some states without an income tax have higher housing costs, utilities or other expenses. Property taxes may be substantial, especially in areas with high housing costs, and sales taxes can add up quickly on everyday purchases like groceries.
While the lack of income tax might seem like a win, it’s important to consider the overall financial picture before moving to a no-income-tax state. The states with no income taxes are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
Realtor.com data shows nationwide listing prices rose, on average, 46.6% between May 2019 and May 2024. Two-thirds of no-income-tax states saw home prices skyrocket even higher over the past five years. Wyoming takes the crown with an 82% increase, followed by New Hampshire, South Dakota and Tennessee with jumps of 76.5%, 65% and 52.7%, respectively.
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Even states with slower price growth like Texas, Washington and Florida (between 26% and 36%) might leave you feeling nickeled and dimed by other costs. Home insurance costs soared in Texas and Florida because of the risk of property damage from climate-related events.
“The emigration away from high-tax states like California, Illinois and New York and into no-tax states is driving up property values due to increased demand for housing said Miles Romney, assistant professor in the Department of Accounting at Florida State University’s College of Business. “But the supply is relatively constrained.”
How Low-Tax States Stack Up
|
State |
State sales tax |
Property tax effective rate |
Average property tax |
Average annual home insurance |
Worth noting |
|
Alaska |
0% |
0.95% |
$3,947 |
$1,116 |
Local sales tax can be as high as 7.5% |
|
Florida |
6% |
0.76% |
$4,476 |
$10,996 |
Costliest home insurance |
|
Nevada |
6.85% |
0.48% |
$2,660 |
$1,224 |
Gambling provides significant revenue |
|
New Hampshire |
0% |
1.25% |
$7,172 |
$1,225 |
State collects tax on dividends and interest |
|
South Dakota |
4.5% |
1.01% |
$3,408 |
$2,562 |
State collects sales tax on purchases that are often exempt elsewhere |
|
Tennessee |
7% |
0.44% |
$1,695 |
$2,470 |
State collects sales tax on purchases that are often exempt elsewhere |
|
Texas |
6.25% |
1.2% |
$4,464 |
$4,456 |
Oil industry provides the state’s significant revenue |
|
Washington |
6.5% |
0.8% |
$5,640 |
$1,437 |
State charges 7% on capital gains over $250,000 |
|
Wyoming |
4% |
0.53% |
$2,930 |
$2,159 |
State charges sales tax on some personal care items like feminine hygiene and diapers |
|
National |
4%-7% |
1.1% |
$2,690 |
$2,377 |
Source: Realtor.com
“States with no income taxes may not be as affordable [as] one would think for a couple of different reasons,” Realtor.com Senior Economist Ralph McLaughlin said. “First, wealthy households may seek to establish residency in such states in order to avoid paying income tax. This would mean the state would have a wealthier population base, and a wealthier base tends to be correlated with higher home prices. Second, states that have no income tax will need to make up for lost revenue in other ways, which may be from a combination of higher property and sales taxes.”
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This article Tax-Free Dream Or Costly Nightmare? The Truth About Living In States With No Income Tax originally appeared on Benzinga.com
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Source: finance.yahoo.com