Would You Reconsider a Move Out of State Based on Taxes?

by Matt B

map puzzleWould you adjust where you live in accordance with taxes levied by local and State Government?  Would your dream neighborhood be no more if property taxes were over the line?  Would you decide not to move to a specific State, based solely upon the personal tax rate of the state?  What constitutes a deal breaker?

Let’s say you are making $100,000/year and currently reside in Florida.  Sure, you’ve got the sun, beaches, extremely hot weather and hurricanes…wait that’s not a good thing.  Anyway, you do not mind Florida, but are offered a job in Oregon.  It’s less work, (not fewer hours, just a lighter workload) the Pacific Northwest has always appealed to you, and the new company has offered you a $15,000/year raise!  Surely, this is an offer that most would not refuse.

Here is my issue: The State of Oregon currently has an income tax rate of 9% for those who make over $7,601 annually.  The State of Florida currently has no income tax (likely due to the money people spend to vacation).  If talking solely on an income basis, you have the bragging rights about your $15000/year raise but a full two thirds of your raise is eaten up by the State income tax.  If you want the actual number, of your $115,000 salary, $10,350 is taken by the state.  This (of course) is assuming no pre-tax withdrawals, which is unlikely if you are making smart choices with your money…you are, right?

So, would you move to (or away from) a state based on the tax rates?

Cost of living over the past 20-30 years has become much more constant throughout the US.  But income tax rates have not changed much from state to state.  It is important to consider variables such as tax rates and overall cost of living before making what could be a life-changing move.  Schools, property costs, neighborhood, employment, local economy…all of these are some of the variables.

Want to know the individual income tax rates by state?  Here goes:

Alabama 2-5% Montana 1-6.9%
Alaska No State Income Tax Nebraska 2.56-6.84%
Arizona 2.5-4.5% Nevada No State Income Tax
Arkansas 1-7% New Hampshire No State Income Tax
California 1-10.3% New Jersey 1.4-8.97%
Colorado 4.63% flat rate New Mexico 1.7-4.9%
Connecticut 3-5% New York 4-6.85%
Delaware 2.2-5.95% North Carolina 6-7.75%
Florida No State Income Tax North Dakota 2.1-5.54%
Georgia 1-6% Ohio 0.587-5.925%
Hawaii 1.4-8.25% Oklahoma 0.5-5.5%
Idaho 1.6-7.8% Oregon 5-9%
Illinois 3% flat rate Pennsylvania 3.07% flat rate
Indiana 3.4% flat rate Rhode Island 3.75-9.9%
Iowa 0.36-8.98% South Carolina 3-7%
Kansas 3.5-6.45% South Dakota No State Income Tax
Kentucky 2-6% Tennessee No State Income Tax
Louisiana 2-6% Texas No State Income Tax
Maine 2-8.5% Utah 5% flat rate
Maryland 2-4.75% Vermont 3.6-9.5%
Massachusetts 5.3% flat rate Virginia 2-5.75%
Michigan 4.35% flat rate Washington No State Income Tax
Minnesota 5.35-7.85% West Virginia 3.6.5%
Mississippi 3-5% Wisconsin 4.6-6.75%
Missouri 1.5-6% Wyoming No State Income Tax

*All rates effective as of 2007 tax year
**Many states with no income tax have higher property tax or other comparable taxes.

Income tax may be one of the last things on your mind when considering a move and/or career change.  Whether it is a consideration or not, it can and will affect your finances.  Be sure you know all of the variables before you pack up and get outta dodge!

Photo Credit: Marxchivist through Flickr

{ 3 comments… read them below or add one }

BillyOceansEleven July 8, 2009 at 1:22 pm

Taxes would definitely influence my decision whether or not to move somewhere. For instance, there is no chance in hell I’d ever move to California because their taxes are so high.

However, I would caution that looking at income tax rates alone is short-sided as governments will generally shake you down for revenue one way or another. Take Texas for example, since that’s where I live now. True, we have no state income tax, but our property and sales taxes are sky high! The property tax rate on my home in Houston is nearly 2.5% of taxable value (after homestead exemptions), and in outlying areas that are covered by Muncipal Utility Districts (MUDs), the rate can be 3% or higher. Likewise, sales tax rate in the city of Houston is 8.25%.

Governments are parasites, some just more than others!

Wojciech @ Fiscal Fizzle July 9, 2009 at 7:52 am

I agree with the comment above. While in Florida it’s true that it’s nice not having the pay state taxes, the property taxes down here are through the roof. The sales tax I don’t mind so much…

In the end, the state has to get its money from somewhere.

Having said that, I can always vote with my money (get a smaller house, buy less things) to avoid these other revenue sources while living in a tax-free state.

If I had the choice of having 2/3 of my raise eaten up by state taxes, I would say – no way.

The sister July 9, 2009 at 11:41 pm

Interesting subject. My move from New York to North Carolina had nothing to do with taxes. I will say that as much as New Yorkers seem to be taxed, I was surprised that the NC rate was higher. Also, in NC luxury items (like cars, boats, etc) are taxed which was a surprise to me. Another thing to consider, too is the amount of opportunity and income potential in a state if you’re considering relocating. I make 25% more from my job than the job I had in NY, so the move has been worth it financially because even though I’m paying more in taxes I’m bringing home more net income than I did at my last job. Interesting topic, though, I thank you for sharing because I think more people will be taking this into consideration when relocating due to the current economic conditions.

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