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While avoiding state income tax can provide significant savings, these states still need revenue streams.
They tend to make up the difference through higher sales,property and other taxes.
Property Taxes
If you own a home, you pay property taxes directly.
If you dont, theyre baked into the cost of your rent.
Either way, they tend to be higher in states that leave your earnings untouched.
For example, property taxes in states likeTexas and Floridaare notably higher than average, said Varghese.
Higher home values get hit even harder.
Sales tax ratesalso tend to be elevated in income-tax-free states, said Varghese.
The average combined state and local sales tax is 8.75% in Florida versus 6% in New York.
That extra 2.75% adds up quickly, especially on big purchases like cars.
Texas has one of the highest taxes per pack of cigarettes at $1.41 versus $0.49 in California.
Even inheritance tax rates can be greater with the lack of an income tax offset, said Varghese.
Moving to avoid income tax may just shift the tax burden onto property, consumption and estates.
Its important to crunch the full numbers to see if its worthwhile for your situation.
There may be breaks elsewhere that balance out.
For example, Texas has extensive taxes and fees related to oil and gas extraction that contribute billions annually.
Specific industries like agriculture, mining, and renewable energy may face specialized taxes.
Toll roads and privatized highways are more common, too.
In summation, theres no such thing as a free lunch.
The costs just get split up and shifted onto various goods, services and activities.
The grass may seem greener, but there are always tradeoffs.
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