Because states—and Washington D.C.—have the right to tax its residents however it sees fit, it can vary greatly from state to state. In some states, there is no income tax at all. The following states do not tax individual income: Alaska, Florida, Nevada, South Dakota, Texas,Washington, and Wyoming. In addition, Tennessee and New Hampshire only tax things like interest earned from stocks and bonds. It sounds like a good deal and that people should be flocking there to keep more of their earned money in their pockets. But is that the whole story? Of course not.
States need money. It has to come from somewhere. Even if you aren’t paying income tax, it is coming from somewhere. Some states, like Alaska and Nevada, have other ways to make up for their loss in revenue. Nevada has gambling money, and Alaska has oil money. Other states use one or a combination of sales, corporate, and property taxes to generate capital. Most places even let governments on the local level get in on the action.
In other words, they’re still getting your money. They just call it something different. For example, Texas and New Hampshire both made the top 10 list of states with the highest property taxes. So maybe they don’t take your hard earned cash right out of your check every week but the land your house is sitting on is going to cost you. Wyoming and New Hampshire are in the top ten for vehicle taxes, too. Texas and Washington also break the top 15 of states with the highest sales tax rates. Wyoming’s tax base is 99% and is so different that I have to study it separately, and it taxes its residents enough that it ends up taking the 4th highest amount in the country. But, you know, no income tax.
Be smart, America. Don’t get suckered in by relocation sales pitches. When they throw things like “no sales tax,” “no income tax,” or “corporate tax breaks and incentives” at you, take a look at what they mean. Do real research when you are debating a move. If you have a choice on where to go, think about what you want your future to look like. Are you planning to buy a house or a car? Are you looking for somewhere that is small business friendly? What about if you are near retirement age? There is a lot to consider when you look at the tax implications. Look not just at how much they plan on taking out of your check. Look into how much they plan on getting out of your checking account, too. Some of these places might end up seeming too good to be true. You might change your mind and pick somewhere else. That low priced real estate they’re trying to sell you on might eat you alive in property taxes. Look at the state and local sales tax rates. You might be surprised.
You don’t have a choice about the cost of taxes at the federal level, but moving to a different county or state can impact how much of your money you get to keep. Don’t forget that.