A recent study comparing the states by income tax, sales tax, property tax, average overall tax burden and average effective income tax rates, including dollar for dollar and by percentage, produced expected results about California’s high tax burden, but also some surprising insights. It wasn’t unexpected that California failed to appear in the lowest 10 states for any tax category. What was surprising for some, however, is that California didn’t appear in the top 10 states for any category except average overall tax burden, and sales taxes. In fact, this confirmed what residency tax planners should know as a matter of course: changing residency from California doesn’t equal tax nirvana for every taxpayer. The details matter. How much tax savings a residency change can produce, if any, or if indeed leaving California will result in a higher overall tax burden (to a taxpayer’s consternation), depends on numerous factors, including the destination state.
The study, carried out by HireAHelper, an online booking agency geared to people looking for moving services, used Bureau of Labor Statistics figures. It conforms to similar studies over the last decade or so.
The study showed that California’s average total effective state and local income tax burden (income taxes, sales taxes and property taxes) is – no surprise – in the top ten, in a dollar for dollar comparison. Only New York, Illinois, Oregon, Connecticut, New Jersey, Massachusetts and Minnesota exceeded California in this category. However, as a percentage, using median income, California is squarely in the middle of the states at 8.9%, tied with South Carolina, of all places. California is also not in the top ten states for effective income taxes, using a method of applying the average effective rate to the median income and expressed in dollars (that is, what median income taxpayers actually pay in dollars versus what they would pay based on marginal rates – but query whether that’s a helpful metric). As might be expected, California appears in the top 10 states with the highest sales tax rates.
Needless to say, the traditional zero income tax states of Nevada, Texas, Washington State, Wyoming, Florida, South Dakota and Alaska came out smelling like a rose in overall tax burden, and also in almost every other category.