States With Lowest Taxes: Would Moving Save Money on Your State Taxes?

While I didn’t get to see the whole broadcast, I caught a portion of a Fox News segment on which the guest discussed the potential advantages to individuals of moving to one of the states with lowest taxes to lower their state tax burden.

Although we aren’t in a position to move right now because of family obligations, moving to reduce our taxes is something we’ve considered. My curiosity piqued, I decided to do a little research and get some more facts.

As a baseline, as Virginians we pay the following state taxes:

  • Individual income tax: 5.75%
  • Corporate income tax: 6% (flat rate)
  • Sales tax: 5%
  • Property Taxes: $1410 (collections per capita)

Disclaimer: the following information is for educational purposes only and is based on information from the Tax Foundation. Taxes rate vary from state to state, and these figures do not represent any additional local or county taxes that might be imposed.

States With Lowest Taxes: Would Moving Save Money on Your State Taxes?

Here’s some interesting facts about different states and their tax rates that you may or may not have known.

States with No State Income Taxes

It turns out there are seven states where individuals pay no individual income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington (state), and Wyoming. However, before you sell your house and pack your bags, these states do have other taxes in place, and those rates could make you change your mind:

Corporate Income Taxes: Alaska’s corporate tax rate is 9.4%, while Florida’s is 5.5%. Texas and Washington are listed as N/A for corporate taxes on the Tax Foundation’s website with a notation of “gross receipts tax. ” Nevada, South Dakota and Wyoming have a zero percent corporate tax rate.

Sales Tax: Alaska has no sales tax, while South Dakota and Wyoming have a 4%. Florida’s rate is 6%; Texas’ rate is 6.25 %, Washington’s is 6.5%, and Nevada’s rate is 6.85% (sales and excise tax).

Property Tax: Wyoming is at the top of the seven states with a $2633/collection per capita property tax followed by the other six in this order:

  1. Alaska – $1865
  2. Texas – $1562
  3. Florida – $1507
  4. Nevada – $1297
  5. Washington – $1257
  6. South Dakota – $1142

As you see, there’s quite a few variables to work through before deciding whether moving to another state would really lower your tax burden

Just for fun, here’s a look at some other state tax statistics ranging from the state with the lowest state income tax all the way to the states with the highest state taxes in income taxes, corporate taxes, sales taxes or property taxes.

Lowest State Income Tax

If lowering your state income tax is your main concern, consider moving to Pennsylvania, which has a 3.07% rate (flat rate). Indiana is a close second with a 3.4% rate (flat rate), while (no surprise here) California has the highest individual income tax rate at 13.3%.

States With Lowest Property Rates

The top ten states with the lowest property rates are (in ascending order from lowest to highest and based on collections per capita):

  1. Alabama – $539
  2. Arkansas – $598
  3. New Mexico – $633
  4. Oklahoma – $642
  5. Delaware – $742
  6. West Virginia – $745
  7. Louisiana – $748
  8. Tennessee – $795
  9. Utah – $837
  10. Mississippi – $853

States With Lowest Sales Tax

The ten states with the lowest sales tax are (in ascending order from lowest to highest and excluding states with zero sales tax):

  1. Colorado – 2.9%
  2. Alabama – 4%
  3. Georgia – 4%
  4. Hawaii – 4%
  5. Louisiana – 4%
  6. New York – 4%
  7. South Dakota – 4%
  8. Wyoming – 4%
  9. Missouri – 4.225%
  10. Oklahoma – 4.5%

States With Highest Taxes

  • Highest State Individual Income Tax: California – 13.3%
  • Highest State Corporate Tax: Iowa – 12%
  • Highest State Sales Tax: Minnesota – 6.875%
  • Highest Property Tax (per capita collection) New Jersey – $2819

What About Tax Freedom Day?

Tax Freedom Day, according to the Tax Foundation, is “the day when the nation as a whole has earned enough money to pay its total tax bill for the year.” The tax hikes that resulted from the fiscal cliff debacle caused Tax Freedom Day for 2013 to fall five days later than it did in 2012. These taxes hikes, as you may recall, were caused by the implementation of Obamacare’s investment and excise taxes as well as the expiration of the Bush Tax cuts, which raised federal taxes on payroll and income.

Did you know that while the nation has a Tax Freedom Day, so does your state? For instance, in our state of Virginia, tax freedom day happens on April 20, 2013. (We’re not there yet!)

Of the seven states with no state income taxes, Alaskans enjoyed the earliest Tax Freedom Day on April 6, 2013 while those who live in Wyoming will have to wait until April 16, 2013 to celebrate their freedom from taxation.

Other Ways to Lower Your Tax Burden

Fortunately, there are some other (legal) ways to lower your taxes without pulling up your roots and moving to another state. Keep in mind you need to be a resident of a state to take advantage of their tax laws (or lack therefore), and residency qualifications may vary from state to state.

1. First, you can become politically active in your state and work to elect individuals who are committed to lowering taxes and limiting the size of government. Find out where there is redundancy or waste in your local and state government and work through the political system to effect changes that will save money and lower taxes for everyone. If you are unsure of how to become more active politically, you may want to consider joining the Heritage Action Sentinel Program, as I did.

2. Work with an experienced tax professional or accountant to make sure you are taking advantage of every legitimate tax credit, deduction and incentive.

3. Lower your taxable income. At the present time, lowering your taxable income by depositing money into some type of individual retirement fund (IRA), company pension plan, or 401(K) plan is a good idea. However, if you believe the United States may decide to follow Cyprus’ example and confiscate these accounts, you may want to rethink that strategy.

Whether you decide to more or stay where you are, odds are that like most folks, you feel like you are taxed enough already. Consider exercising your rights and calling, emailing, faxing or using other means to contact your state and local representatives and express your views regarding taxation.

Image by under 401(K) 2013 under CC-BY-SA 2.0 via Flickr

Resources:

Tax Foundation, State Tax and Spending Policy

William McBride, Kyle Pomerleau, and Elizabeth Malm, “Tax Freedom Day 2013 is April 18, Five Days Later Than Last Year,” Tax Freedom