Thursday, March 25, 2021

Taxes, Taxes, Taxes!

The year 2020 will be known for many things, and taxes is a subject that was close to the top of the list. States with low or zero income taxes were Top of mind for many wealthier consumers, and the states of Florida and Texas became a huge draw for many seeking to lower their tax burden.

The reality is that some states have exorbitantly high local taxes. But income taxes are not the only local taxes that are paid. Real Estate taxes are a big component too. Sales taxes too. Licensing taxes. Gasoline taxes. Payroll taxes. Tolls. Corporate taxes. Here are some facts about local taxes:

* The five states with the highest average combined state and local sales tax rates are Tennessee (9.53%), Louisiana (9.52%), Arkansas (9.47%), Washington (9.21%), and Alabama (9.22%).
* The highest state income taxes are paid in Oregon,. Minnesota, DC, California, New York, Iowa, Wisconsin, New Jersey, and Illinois.
* 45 states and the District of Columbia collect statewide sales taxes.
* 8 US states have no state income taxes: Texas, Florida, Tennessee, Nevada, Alaska, Washington, Wyoming, South Dakota.
* 10 States have a flat state income tax: Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, New Hampshire, North Carolina, Pennsylvania, Utah 
* ALL states have bills to pay and large governments to run: most states that don't collect income taxes compensate by collecting taxes from other areas including natural resources (such as oil), gasoline taxes, or massive tourism-related taxes.
* While many focus on real estate taxes and state income taxes, it is wisest to examine the tax burden, which measures the proportion of total personal income that residents pay toward state and local taxes. Wallethub did an interesting evaluation of this that reveals the overall tax burden in New York (the highest on the list at 12.28% is around DOUBLE that of Florida - 6.82% - or Tennessee - 6.18% .....note Florida and Tennessee are not zero).

When evaluating local taxes in a state, be sure to evaluate ALL the taxes:  income, property, sales, and excise taxes. AND.....what do you get for those taxes? Schools?  Roads? Transportation options? Quality of life? AND.....what are the local incomes? What you net and what your money buys is often more important and meaningful than the percentages.

Courtesy of Leonard Steinberg COMPASS

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