States That Have No Income Taxes
Where you live has a tremendous effect on your tax rate, because a few states do not levy a tax on income. The states with no income tax are often a haven for retirees who often depend on a fixed income. Living in a state without an income tax is not always the most affordable place to live, however, and you must factor in other possible taxes.
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Identification
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The nine states that do not impose a tax on income as of 2011 are Florida, South Dakota, Alaska, Wyoming, Washington, Nevada, Texas, Tennessee and New Hampshire. Tennessee and New Hampshire are considered states with a quasi-income tax, because they collect a tariff on stock dividends and interest.
How Do These States Generate Revenue?
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Most states collect revenue from property and sales tax, estate, fuel and license taxes. Alaska, Florida and South Dakota impose a corporate income tax on businesses based in the state. Nevada generates almost all of its revenue from gambling tax. Some states, such as Wyoming, earn so much from leasing mineral rights that they can afford to subsidize income tax and have a low sales tax.
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Benefits
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Not paying a state income tax puts more money in your pocket. State income tax rates can exceed 10 percent in places such as California. Coupled with federal taxes, you could be paying more than 40 percent of your salary to various governments. Also, eliminating the state sales tax means you less paperwork around tax season.
Does It Make Sense to Live In These States?
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Moving to a state without income tax does not always make fiscal sense, because other taxes could cost much more. Property tax, especially on homes and cars, tends to be much higher in no-income tax states to make up for revenue shortfall. Also, consider sales tax, such as Florida's 34 cent gallon tax in 2010 and Alaska's $12 sin tax on each gallon of alcohol.
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