Choosing a Home Base State - Part 2© Donna Yeaw
Feb 2, 1999
Taxes, Favored States & Resources
Last time we talked about some of the general items you need to review when choosing a home base state as well as vehicle registration, driver's licenses and various health insurance concerns.
This time we'll cover some of the tax ramifications that need to be considered. We'll also take a brief look at four of the favorite home base states - Florida, Texas, Tennessee and South Dakota. Finally I'll list some on-line and off-line resources to help you in your evaluation.
A TAX IS A TAX - OR IS IT:
"Using different measures, a state's tax burden can differ substantially. For example, Mississippi is ranked 39th in terms of tax burden per capita, but is ranked 9th in terms of tax burden per $1,000 of personal income. On the other hand, New Jersey is ranked 13th in per capita tax burden, but 42nd in terms of tax burden per $1,000 of personal income."Source: Arthur P. Hall, "State Tax Rates and 1995 Collections," Special Report No. 64, October 1996, Tax Foundation, 1250 H Street, NW, Suite 750, Washington, DC 20005, (202) 783-2760. TAX CONSIDERATIONS:
- Does the state have a personal income tax?
Believe it or not, you might actually make out better with a state that does. If you income is low, you will probably not pay much in personal income tax. In addition, states without personal income tax have to make the money somewhere, often in high sales tax or other unusual taxes.One caution here, even some states without personal income taxes still tax the income from interest & dividends. Florida is one of those. If a large portion of your income comes from these sources, beware!
- Is pension income taxed?
This is a real biggie, for obvious reasons. If you aren't retired yet, then keep it in the back of your mind for future reference. You might chose a state that does tax pension while you are still working and then change to a different state once you retire.
- What is the sales tax rate?
Some states exempt medicine, some food, some even clothes - there is no standard here. Some states tax services, including professional - this can add up quickly!In addition, you will need to understand the impact of local sales taxes as well. The state may only be 3%, for example, but the actual tax may be as high as 8% once the local taxes are added.
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