Taxes are taxing everywhere, and real estate investors -- and everyone else -- face the same requirements when it comes to the feds. But there’s a big difference depending on which state and city you’re in.
A new report shows that the state and local tax burden -- comprising property, state income, and sales taxes -- ranges from a high of 12.8% as a percentage of income in New York to a low of 5.04% in Alaska.
The report, released in mid-December by the HireAHelper moving-help website, used data from the U.S. Census Bureau and the Bureau of Economic Analysis to rank states by tax burden.
As a whole, Americans paid $1,672 in property taxes, $1,301 in state income taxes, and $1,869 in state and local sales taxes in 2018, totaling $4,842 or approximately $8.9% of per capita income. But those allocations vary widely from state to state.
The highest- and lowest-tax states
There’s a lot of good info in the tables and lists in this report, including a heads-up for those who think fleeing New York will significantly save them on taxes along with everything else. You might have to move a bit farther afield than you first thought.
That’s because the number four, five, six, and seven highest-tax states on this list are nearby Vermont, Connecticut, Maine, and New Jersey, respectively.
The five lowest, meanwhile, are in order from the lowest: Alaska, Tennessee, Wyoming, Delaware, and New Hampshire.
That said, the Northeast states do tend to have a higher tax burden and the South contain those states with some of the lowest, if you look at it by region.
Taxes broken down by category offers a deeper look
The 2017 Tax Cuts and Jobs Act has made state and local taxes (SALT) more of an issue for many since it capped at $10,000 the total amount of SALT that you can deduct. The HireAHelper report helpfully breaks out property, income, and sales taxes as a percentage of income to help you assess the tax burden in the states where you might be considering moving.
That’s also useful for investors, especially from out of state, who have no intent to move and for whom the sales tax where they have rental properties might not be as relevant. In fact, there are nine states that have effectively no state income tax: Wyoming, Alaska, Florida, South Dakota, Texas, Nevada, Washington, Tennessee, and New Hampshire.
Hawaii takes in the highest sales taxes as a percentage of income at 6.68%, according to the HireAHelper list, but close behind are two of those non-income-tax states: Nevada at 6.03% and Washington at 5.68%.
New Hampshire, meanwhile, leads the list for property taxes as a percentage of income at 5.47%, followed closely by Vermont at 5.12%
The Millionacres bottom line
These numbers are interesting but really provide only a big-picture look at where you might be considering a move or real estate investment. For one thing, the report measures the tax impact as a percentage of income, so higher-income states are going to have comparatively lower impact by those metrics than will lower-income states. That said, those comparisons still provide a solid basis for your assessment of the tax impact in each of these states based on your own individual income realities and projections.