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By John D. Welcome, Re/Max Authorized Real Estate Agent |
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Tax Friendly Places of 2005
Top honors go to Alaska, New Hampshire and
Delaware. Most unfriendly? Maine, New York, D.C.
By Jeanne Sahadi, CNN/Money senior writer
NEW YORK (CNN/Money) – When you travel from state to state, some
differences are readily apparent: the landscape, people's
accents, use of the word "dude," you name it.
But you can't know what it truly costs to live in a place until
you get hit with the whole megillah of taxes.
Every year, the Tax Foundation measures the total tax bill for
each state, creating a list of the most – and least –
tax-friendly states in the country.
See the full list here. And see more state rankings based on
income tax, sales tax, property tax and tax breaks for retirees.
In creating its rankings, the Tax Foundation measures as a
percentage of per capita income what residents pay in income,
property, sales and other personal taxes levied at the state and
local levels. It also factors in the portion of business taxes
passed along to state residents through higher prices, lower
wages or lower profits.
The Tax Foundation is a nonpartisan, nonprofit policy research
group that advocates, among other things, tax simplification.
The winners are ...
This year, Alaska again takes top honors as the most
tax-friendly to residents. It has no state sales tax, no income
tax and the government annually sends residents a refund because
of the excess revenue it collects from companies extracting oil
from the state.
New Hampshire comes in second. Although it has relatively high
property taxes, like Alaska it doesn't impose a sales tax and it
doesn't tax wages (although it does tax investment income).
Delaware takes third place, primarily for its lack of a sales
tax, its low income taxes – the top rate is 5.95 percent – and
the relatively light burden imposed on residents resulting from
the state's corporate tax.
Topping the list of least tax-friendly places is Maine. Its No.
1 ranking results from the great disparity between the fact that
it is one of the lowest income states in the country yet has one
of the highest rankings in terms of tax collection, said Curtis
Dubay, an economist with the Tax Foundation.
Property taxes account for about 40 percent of the overall tax
revenue Maine collects, and it has relatively high income tax
rates – a top rate of 8.5 percent for all income above $16,950.
The District of Columbia comes in second, due in part to a high
individual income tax – the top rate is 9.3 percent for income
above $30,000.
New York, meanwhile, maintains its usual high ranking thanks to
an average sales tax of about 8 percent when average state and
local rates are combined, plus the option to levy a local income
tax, which is one of the reasons New York City is among the
least tax-friendly cities in the country.
In fact, the revenue generated by local taxes levied across New
York account for about half of all tax revenue collected in the
state, Dubay said.
It's not just about the averages
Of course, how tax friendly a state is to you depends on several
factors. For instance:
How you make your money. Two states, Tennessee and New
Hampshire, don't tax wage income but tax investment income. So
if you're living off your investments, you'll pay for the
privilege.
Where in a state you live. Big cities tend to have bigger tax
bites than many suburban and rural areas in a state. (For a look
at the rankings of the tax burden in the largest cities in the
country, click here.)
Whether you own a home. A state may have modest taxes in many
areas but rank high when it comes to property taxes. New
Hampshire, for example, is a tax-friendly state overall, but has
relatively high property taxes. Also, owning a home in a
desirable neighborhood in any state is likely to increase your
property tax bill.
Whether you're retired. Some states, even high-tax ones like
Hawaii and New York, offer retirees income-tax breaks.
Whether you smoke or drink. Cigarette and liquor taxes can add
up when you're feeding a habit. Ditto if you drive a gas guzzler
in a state with high fuel taxes.
How tax-friendly is your state?
Local and state
taxes can have a big impact on your take-home pay.
There are countless reasons why you choose to live where you
live. The climate, the schools and the job opportunities are
just a few. But state and local taxes can make a big difference.
The Tax Foundation, a policy research group, estimated the
average taxpayer's total state and local tax burden for 2005 in
each of the 50 states and the District of Columbia. That burden
reflects what residents pay in state and local income taxes,
property taxes, sales taxes, luxury taxes and fuel taxes, among
others. States below are ranked from least to most tax friendly.
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