Tax in the USA: location matters!

In these times of crisis, many taxpayers are choosing to relocate their investments or even themselves to ease their tax burden. The United States of America is very disparate in terms of taxation: each state has its own tax rates and its own way of assessing taxes. As a result, taking the time to review these differences is an important step in your relocation decision.

1. State Individual Income Tax

Seven states do not tax individual income:
Alaska, Florida, Nevada, South Dakota, Texas, Washington state, and Wyoming.

Some states tax only a portion of income: for example, New Hampshire and Tennessee only tax interest and dividends.

Top 3 marginal individual rates:

California    13%
Hawaii    11%
New Jersey    10%

Lowest 3 marginal individual rate:

North Dakota    2.9%
Pennsylvania    3.0%
Indiana    3.2%

2. State Corporation Tax / Gross receipt tax / State Franchise Tax

As a general rule, corporate income is taxed in the state of incorporation of the entity and in the state in which the entity is conducting its activities (
nexus). Two states do not tax corporate income: South Dakota and Wyoming.

Forty-four states tax corporate income after deductions (
corporate income tax).
Four states tax corporate gross revenue before deductions (
gross receipt tax). These states are: Nevada, Ohio, Texas, Washington.
Finally, many states levy a tax for “access to the territory of the state”(
Franchise tax ). These states include: Alabama, Arkansas, California, Delaware, Georgia, Illinois, Louisiana, Mississippi, Missouri, New York, North Carolina, Oklahoma, Pennsylvania, Tennessee, Texas, and West Virginia.

Top 3 marginal corporate rates:

Iowa    12%
New Jersey    10 %
Pennsylvania    9 %

Lowest 3 marginal corporate rate:

North Carolina    2.5%
Missouri    4%
North Dakota    4%

3. Sales and Use Tax

Among developed countries, only the United States has not adopted VAT (value added tax) and prefers the system of tax on the sale of consumer goods. The sales tax is paid by the final consumer and collected by the seller if the latter has a substantial physical presence (employees, agents, business premises) in the buyer's state of residence (
nexus ).  The sales tax include a state component and a local component (surtax).

Four states that do not levy sales tax :
Delaware, Montana, New Hampshire and Oregon.

Note – Saving on sales tax by shopping in a neighboring state!
Americans are very mobile and do not hesitate to travel to the neighboring state to do their shopping if the sales tax is lower there. For example, residents of Vermont (sales tax 6.2%) regularly shop in the neighboring state of New Hampshire (sales tax 0%)!

Top 3 sales tax rates:

Tennessee    9.5%
Louisiana    9.5%
Arizona    6.4%

Lowest 3 sales tax rate:

Alaska    1.7%
Hawaii    4.4%
Wyoming    5.3%

4. Property Tax

The methods of taxing real estate in the United States vary greatly: some states assess the tax on the market value of the property (f
air market value) and others assess the tax on a  calculated value ( assessed value ). Some states offer reduced rate and even exemption for certain categories of the population such as the elderly or the veterans.  Property tax is assessed  at the locality level because it finances schools, firefighters and utilities.

Note – Saving on property tax in
homestead exemption states!
Some states offer a generous exemption of property tax. For example, a  Florida resident is exempt from the first $ 50,000 of the property's value for property tax purposes.

Top 3 Property tax rates:

New Jersey    2.2%
Illinois    2.0%
New Hampshire    2.0%

Lowest 3 Property tax rate:

Hawaii    0.3%
Alabama    0.4%
Louisiana    0.5%

As you can see from the above data, your decision to relocate will need to take into account many types of taxes. Your decision to relocate should also take into consideration non-tax related parametes such as the location of employment opportunities, the location of quality health care providers and most important the location of your family and friends. To assist with your relocation decision contact
Karine Bauer, EA at Kbauer Financials LLC now, 20 years of international tax expertise! As always, the data presented in this file are not intended to replace professional advice. For advice specific to your situation, contact Karine Bauer, EA.

Bear in mind the date of this article as tax laws change over time.

Updated: November 15th, 2020