Nobody likes paying taxes, and it is quite common to hear business people and wage earners alike lament about them. Its one thing to complain about the burdens of taxes, but some choose to escape high taxation by moving to less taxing states. States tax for a number of goods and services, but the four main taxes to concern yourself with are business taxes, income taxes, sales taxes, and capital gains taxes. Below we explore which states rank lowest in taxation for these three areas. Therefore, if taxes have become a serious burden more than just a small bother, perhaps you should consider incorporating or moving to one of these states to free yourself from the grip of high taxes.
Where to incorporate a business is a big consideration for most new founders. Though some entrepreneurs decide to open up shop in the state they currently live in, it pays to do your research and consider the tax repercussions of doing business in different parts of the country. A recent study by research group "The Tax Foundation" analyzed the current business tax climate in America and found several states to be much more hospitable to businesses than the others. The results are discussed below.
Of all the states, the study reports that Wyoming, Nevada, and South Dakota are far and away the best states (from a strictly tax standpoint) to do business in. This is because these three states have no corporate or individual income tax, meaning the money you make is entirely yours to keep (minus federal income taxes). Coming in at a close second is Alaska, which enforces no personal income tax or sales tax of any kind. Alaskan businesses are able to produce and sell for less because they don't have to pay sales tax on the materials they buy in state.
Following Alaska is Florida and Texas, as they lack all state income tax. Last on the list (but certainly not least if one considers the tax laws in states like New York and New Jersey) are New Hampshire, Delaware, Oregon and Montana, as they have no sales tax.
Income taxes can be a serious burden depending on the state you choose to work in. As mentioned above, several states offer great income tax breaks to attract bright and talented employees to their area. If you can bear the cold climate of Alaska, you can work there and avoid state income taxes altogether. For those who prefer warmer weather, Florida, Nevada, South Dakota, Washington, Wyoming and Texas enforce no individual income tax either.
Consider what this means: in these several states, a $50,000 salary means you only pay the federal income tax without owing any dues to the state. In Tennessee and New Hampshire, the state only taxes income earned from investment interest and dividends, and excludes salary or hourly income.
The other states all have income taxes, but some offer competitively low taxes as compared to others. The main difference between states with income tax is whether they have a scaling income tax structure or a flat rate. The scaling structure requires you to pay more taxes as you earn more money, whereas the flat rate taxes every earner at the same rate. The states with the lowest flat tax rates are Illinois (3%), Pennsylvania, (3.07%), Indiana (3.40%) and Michigan (4.35%).
The sales tax inflates the price of goods by tacking on an additional fee to the purchases we make. It is therefore advantageous to reside in a state where these taxes are either nonexistent or very low. For those intent on avoiding this tax altogether, Alaska, Delaware, Montana, New Hampshire and Oregon collect no sales taxes.
Some states offer a flat, statewide sales tax that does not vary, whereas others allow counties and cities to tack on additional sales taxes as they see fit. This sort of structure can significantly raise sales tax as you travel across the state. As an example, Nevada looks good on the surface, as it only charges a 6.8% state sales tax. However, since the state allows it's cities to tack on additional sales tax, you can end up paying up to 13% in some areas. To keep more money in your wallet, stick with the states offer a flat sales tax. These states include Connecticut, Hawaii, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Rhode Island, Vermont, Virginia, and West Virginia.
Out of those with the single, flat rate, the two states with the lowest sales tax are Maine (5%) are Virginia (5%), followed by West Virginia (6%), Michigan, (6%), and Connecticut, (6%). The states with the highest sales tax burden (including surtaxes by city and county) include Illinois (11.5%), Arizona (10.6%), California (10.25%) and Alabama (10%). Clearly those seeking to diminish their sales tax burden are well advised to avoid living in such highly taxed areas.
Capital Gains Tax
Capital Gains tax is a tax on profit earned on "non-inventory items." This tax usually refers to the sale of stocks, bonds, and property. Thus, if you are an avid stock market or real estate investor, it can be detrimental to your career to work in a location that enforces high capital gains taxes.
Like most other state-variable taxes, there are several states that offer no capital gains tax and are thus the most hospitable places for career investors to live. Real estate investing resource, TheREIBrain, reports that Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Utah, Washington, and Wyoming do not enforce this tax.
If living in these areas are not an option for you, the next tier to aim for might be states with exceptionally low capital gains tax. Illinois has a 3% flat rate, followed by Pennsylvania (3.07% flat) and Indiana (3.40% flat). States to be avoided due to exceptionally high capital gains tax are DC (9%), California (9.30%), Oregon Â (9%) and Rhode Island (10.10%).
About the Author: Joshua Bitton is a freelance writer for Echo Sign. EchoSign is the leader of the 2nd generation of electronic signature solutions – 100% web-based, fully digital signature solutions that do not require electronic signature pads, digital certificates or scanning software. With EchoSign, there is nothing to install or learn.