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7 High taxes and fees you pay in states without income tax
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7 High taxes and fees you pay in states without income tax

Olivier Le Moal / Shutterstock.com

Olivier Le Moal / Shutterstock.com

Americans considering moving have 50 states to choose from, and if some of them don’t impose income taxes, why on earth would anyone move to a state that does?

That’s because the revenue has to come from somewhere, and if your state doesn’t tax your income, it has to squeeze you elsewhere to make up the difference.

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“I’m often asked about the pros and cons of living in states with no income tax,” said Benson Varghese, founder and managing partner of Varghese Summersett, a law firm in Texas where he advises clients on financial and tax matters. “While avoiding state income tax can provide significant savings, these states still need revenue sources. They tend to make up the difference through higher sales, property and other taxes.”

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Property taxes

If you own a home, you pay property taxes directly. If not, they’re included in the cost of rent. In any case, they tend to be higher in states that leave your income untouched.

“For example, property taxes in states like Texas and Florida are significantly higher than average,” Varghese said. “The annual property tax on a $250,000 home in Texas would be about $3,000, compared to $2,000 in a state like North Carolina. Higher property values ​​are even more affected.”

VAT

States that don’t have an income tax make up for lost revenue through the tax, which follows you everywhere and affects everything you buy, from a yacht to chewing gum.

“Sales tax rates also tend to be higher in income tax-free states,” Varghese said. “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 large purchases like cars.”

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“Sin taxes”

If you’re one of the millions of Americans who don’t always live a clean life, expect to pay more for the things that make you feel good, even if they’re not good for you.

“Sin taxes on things like cigarettes, alcohol and gambling also tend to be higher as states use vice to increase revenue,” Varghese said. “Texas has one of the highest taxes per pack of cigarettes at $1.41 compared to $0.49 in California.”

Inheritance taxes

If you move to a state where you want to avoid income taxes, not only you but also your descendants could be left with the costs.

“Even inheritance tax rates can be higher if there is no income tax offset,” Varghese said. “If you want to avoid income tax, the tax burden may only shift to property, consumption and estate. It’s important to run all the numbers to see if it’s worth it for your situation. There may be tax relief elsewhere that offsets that.”

Other taxes

States also impose lesser-known taxes that you may not notice as much as obvious things like sales tax, but that still contribute to tax revenue.

“In addition to the more common taxes on property, sales and vice, some states are getting creative and imposing lesser-known levies,” Varghese said. “Texas, for example, imposes extensive taxes and fees related to oil and gas production that generate billions annually. There are also taxes on utilities, hotel occupancy, insurance premiums, and dividends and investments that help fill the gap.”

Environmental taxes

If your state doesn’t tax your income, it may tax your carbon footprint to make up the difference.

“Some states impose environmental taxes on things like plastic bags, tires and car batteries to fund environmental protection measures,” Varghese said. “Special taxes may apply to certain industries such as agriculture, mining and renewable energy.”

Licenses, registrations and fees

Other revenue losses include the countless fee-based activities and the fines associated with the rules and regulations.

“Even hunting and fishing licenses, vehicle registration fees, traffic fines and other minor fees tend to be higher in states that don’t impose income taxes,” Varghese said. “Toll roads and privatized highways are also more common.”

In summary, nothing is free. Every state has to pay its bills and if it doesn’t tax your income, it gets its contribution from other sources.

“While avoiding income tax may seem attractive, you end up paying in less obvious ways,” Varghese said. “The costs are simply split and shifted across different goods, services and activities. It’s not necessarily cheaper overall, so beware of the hidden taxes when moving to a state that doesn’t impose income tax. The grass may seem greener, but there are always trade-offs.”

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This article originally appeared on GOBankingRates.com: I’m a Tax Expert: 7 Big Taxes and Fees You Pay in States With No Income Tax

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