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Practicing in a no-state-income-tax state

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  • Practicing in a no-state-income-tax state

    Greetings, all!  I've often wondered if practicing in a state that doesn't levy an income tax makes a significant financial benefit in the long run, or does the state get you in other ways such that it's not appreciably different than another state in which a tax is charged?  Any docs who are or have worked in such states, or even our resident accountant contributors, are welcome to enlighten me.

  • #2
    The beast must be fed, and money does not fall from the sky. Even states like Texas and Florida, where there is no income tax, have to provide and/or maintain schools/universities, police forces, firefighting and ambulance services, bureaus of licensure and this and that, highways and roads, parks, fancy boondoggle trips for elected government officials, and prisons to later incarcerate the elected officials, among other facilities and services. The tax money must come from somewhere, be it hotel and car rental taxes (big sources of revenue in Florida), city/local tax, sales tax, property tax, inheritance tax, or other taxes, tolls, and levies.

    Unless you move to a state where the police force, firefighters, professors, and highway maintenance personnel are all volunteers and the elected officials don't regularly end up in prison, there is a good chance you are paying for these services (or perhaps someone visiting the state is helping to shoulder your burden, so you better be nice to me when I visit).

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    • #3
      In Texas the property tax is high.  I'm a lot better off since the value of my house is low compared to my income.

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      • #4
        I've sometimes wondered what the border location with the most disparate tax laws is, which you can exploit to your advantage.  You know, by commuting to a state with no income taxes and living in a state with low sales and property taxes (more stuff to do would be nice as well), and buying your gas, alcohol, and cigarettes in either one.

        Not a lot of obvious candidates from looking at a map - maybe Texas/SW Arkansas or Pensacola FL/AL gulf coast?  Clarkston WA/Lewiston ID?  But not desperate enough to save a few grand to move to any of those places.  Too bad there are no decent big towns around the Four Corners.
        I sometimes have trouble reading private messages on the forum. I can also be contacted at [email protected]

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        • #5
          I live in a no-tax state.  Folks here complain about potholes, underfunded schools, etc just like they do in the neighboring high-tax state and pretty much every place I've ever lived.  My biggest tax is property tax and although it is based on assessed value, I can't figure it out; my first house was about 0.3% of the market value, my "attending" house is around 0.8%.  I believe this is in line with our neighbor, as is our sales tax.  Gas is cheaper here.  I just checked, our medical license fee is cheaper too.

          Not sure where all that extra money is going for our neighbors, but at a top (for me) marginal rate of 12.3%, that's a pretty stiff headwind.  With over-simplified math (yes, I understand tax brackets and also itemized deductions), I calculated it would cost me about 7 cents/min to move across the border:  $365k * 10% / 365 days = $100/day or $4/hr.  For somebody who will wait in line for Costco gas to save 10 cents/gallon, this math is impossible to ignore.

          @Vagabond, you better believe I appreciate every tourist that I see!  When I care for them in hospital, I make it a point of thanking them for visiting.

          @Lithium, back in the day I enjoyed working in WA (no income tax) and shopping in OR (no sales tax)!

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          • #6
            By living and working in WA we avoid paying over $30k per year in state income taxes that we would pay living in a state like HI, OR, or CA. That's more than a few grand in my book. Our property taxes are 1-1.5%. Our sales tax is 9%. Our cost of living is not low because businesses pay a business tax that flows through to prices. But by being an earner/saver/investor rather than a spender/consumer, I come out quite far ahead compared to living in a state with an income tax.

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            • #7




              In Texas the property tax is high.  I’m a lot better off since the value of my house is low compared to my income.
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              No, the property tax is not high in Texas.  The tax rate per $100K in valuation is relatively high, but the cost for a good sized house and some acreage is quite low compared to the East and West Coast.  With a high tax rate and low housing costs, you end up with comparable property taxes on a 2500 square foot house in Houston as in Los Angeles, but better schools and roads and no 10.3% individual income tax.

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              • #8




                I’ve sometimes wondered what the border location with the most disparate tax laws is, which you can exploit to your advantage.  You know, by commuting to a state with no income taxes and living in a state with low sales and property taxes (more stuff to do would be nice as well), and buying your gas, alcohol, and cigarettes in either one.

                Not a lot of obvious candidates from looking at a map – maybe Texas/SW Arkansas or Pensacola FL/AL gulf coast?  Clarkston WA/Lewiston ID?  But not desperate enough to save a few grand to move to any of those places.  Too bad there are no decent big towns around the Four Corners.
                Click to expand...


                Vancouver, Washington seems to be the sweet spot.  You can live in a state with no income tax and drive across the bridge to shop in a state with no sales tax.

                Obviously you need to consume all those items you buy while still in Oregon. Anything you bring back from Oregon to Washington State is subject to use tax, which I'm sure all of us declare and pay. :lol:

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                • #9
                  I have thought about moving when I completely retire for this reason.  A state (TN) is only 20 miles away has no income tax but they tax investment income and have higher property tax.  I have family in Texas and love Florida.

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                  • #10




                    I have thought about moving when I completely retire for this reason.  A state (TN) is only 20 miles away has no income tax but they tax investment income and have higher property tax.  I have family in Texas and love Florida.
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                    The TN investment income tax is on its (slow) way out.

                    http://www.tennessean.com/story/news/politics/2016/05/20/gov-bill-haslam-signs-hall-income-tax-cut-repeal-into-law/84044810/

                     

                    There are several formulas to calculate a "total" tax burden by state.  Here's one such list:

                    https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494/

                     

                    I absolutely calculated after-tax income when I was comparing job offers.  For us, an extra 5% in sales tax or 0.5% in property tax does not have nearly the effect that an extra 1% in income tax does.

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                    • #11
                      This is something I've thought about as I try to figure out where I want to settle down.  I have family in desirable, high-tax, HCOL areas, and I've lived/worked there as well as in no-tax, MCOL of areas, which is where I currently live.  The difference in income tax alone on the same doctor's income can be up to $30k.  That's quite a bit, for that amount I could probably fly back and forth every weekend if I wanted to.  However, the income is likely not the same, and there's a good chance I'd get paid less in these desirable areas, and COL is higher, so the potential savings gap between these 2 areas can grow further.  Certainly these no-income tax States get revenue some other way, such as property tax, and maybe the property tax rate is higher, but overall tax paid may not be significantly different due to lower property values.

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                      • #12




                        I’ve sometimes wondered what the border location with the most disparate tax laws is, which you can exploit to your advantage.  You know, by commuting to a state with no income taxes and living in a state with low sales and property taxes (more stuff to do would be nice as well), and buying your gas, alcohol, and cigarettes in either one.

                        Not a lot of obvious candidates from looking at a map – maybe Texas/SW Arkansas or Pensacola FL/AL gulf coast?  Clarkston WA/Lewiston ID?  But not desperate enough to save a few grand to move to any of those places.  Too bad there are no decent big towns around the Four Corners.
                        Click to expand...


                        That doesn't work. If you work in a state with income taxes, you have to file and pay taxes there if you live in a no-tax state. So, for example, if you live in FL and do locums in CO and WI, you have to file two state income tax returns and pay the respective taxes to each state. If you live in a state that does assess taxes and you commute to a state with no income taxes, you will be taxed on your income in your state of residence.

                        We have quite a few clients in both situations. As Vagabond MD said, the beast must be fed.
                        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                        • #13
                          You really need to get into the weeds on this if you're going to do an honest comparison. The link above has several inaccurate numbers on a cursory view of things. Several of the sales tax rates are grossly understated, for example. Also, it misses the fact that states like OH exempt the first 250k of business profit from tax, or that states like NC charge you a tax on the worth of your vehicle, etc. Do an all-cost comparison. Income tax is the big ticket item. TX and OH have bad property tax per $1000 of property value, but in a state like TX (or in OH if you're running a business) this matters a lot less because of the attractive income tax. Taxable income at 13% in ludicrous CA will run you tens of thousands of dollars, regardless of what home you decide to buy. At least in the other states you can opt for a smaller home. Even a larger home won't hit you as hard as the state income tax will though. As for TN, I would like to see the investment income reduced because it is an attractive state otherwise on several levels. 6% on dividend income is annoying, but again this still looks attractive because of the 0% state income tax.

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                          • #14
                            TN here. No income tax except the dividend tax (https://en.wikipedia.org/wiki/Hall_income_tax) that is being reduced 1% per year and does not apply to the first $2500 yearly for a family (so with a 2% dividend rate which is less for VTSAX that is no tax on the first $125k). This of course does not apply to IRAs/401ks which includes most of my savings, so if you fill these you need >$200k investments to hit the tax. After these exclusions the 2017 rate is 4% on likely less than 2% dividend rate so the effective rate beyond the exclusions is 0.08% ($8 per $10k invested).

                            The property tax rate is darn low but depends on locale. Mine is about $1k for a $300k house.

                            Sales tax is where they collect. So if you don't spend you don't pay. Growing up I'd double the tax to know my tip. 9.25% here with almost no exceptions.

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                            • #15


                              Sales tax is where they collect. So if you don’t spend you don’t pay. Growing up I’d double the tax to know my tip. 9.25% here with almost no exceptions.
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                              TN has a local option for sales taxes of up to 2.75% for any county or city, on top of the state-wide sales tax of 7%. The sales tax when I go shopping in Nashville and surrounding areas takes a big bite. Residents of the northern border of TN (near me) often cross the state line to buy groceries in KY which charges no sales tax on food and medicine and 6% general sales tax.
                              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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