Anywhere you go in the U.S., you'll still have to pay taxes.
But choosing low-tax states to live in can free you from your tax
burden a lot faster than in other parts of the country.
The nonprofit Tax Foundation created Tax Freedom Day as a way
of easily comparing the relative amount of taxes that people pay
to federal, state, and local revenue agencies. You can do the
same simply by taking the total you pay in tax and dividing it by
your income, telling you what percentage of the year you spend
paying your fair share of taxes.
For the U.S. overall, Tax Freedom Day won't come until this
Thursday, April 18, and as we saw yesterday,
some states will have to wait quite a while
before they can declare independence from taxes. But in several
states, Tax Freedom Day has already come and gone. Let's look at
the six least-taxed states in the U.S., along with a brief
explanation of what makes their taxes so much lower than the rest
of the country.
6. South Dakota, April 4
South Dakota makes the list for a couple of key reasons: It
doesn't have an individual income tax, and it doesn't charge
businesses on their corporate income, either. The state gets its
income from property and sales taxes, but a state sales tax of 4%
with local taxes of about 1.8% still doesn't raise the total
burden too far. Property taxes average less than $1,150 per
4 (tie). New Mexico, April 3
Where New Mexico stands out is in low property taxes, with an
average of just $633 each year. By comparison, a 4.9% top
income-tax rate and a 5.125% sales tax actually bring in a fairly
substantial amount of tax, with the state's per-person sales and
excise tax liability among the top quarter of states across the
nation. Corporate income-tax rates are also fairly high at 7.6%,
although the rate is low enough to have enticed chipmaker
to move to the area in the early 1980s and gradually expand its
production facilities over time.
4 (tie). South Carolina, April 3
South Carolina's tax rates don't seem all that attractive, with a
7% maximum individual income-tax rate and a 6% sales tax. But low
property taxes of just over $1,000 on average help keep total
taxes down, and a relatively small business presence leads to
very low corporate-tax revenue.
3. Tennessee, April 2
Tennessee's claim to tax fame is that its 6% income tax applies
only to interest and dividend income, leaving wages untouched.
Property taxes of less than $800 are also extremely low, although
a sales tax of 7% helps the state raise needed revenue. A flat
corporate-tax rate was probably one incentive that attracted
to locate its headquarters in Memphis.
1 (tie). Mississippi, March 29
Mississippi earns high honors on the list with its emphasis on
low income and property taxes. The state boasts a top income-tax
rate of 5% and property taxes averaging about $850 per person.
Mississippi earns much of its revenue from a 7% sales tax, but a
low corporate income tax also helps keep the overall burden on
the light side.
1 (tie). Louisiana, March 29
Louisiana climbs to the top spot by keeping property taxes below
$750 and collecting just a 4% sales tax, although local options
add nearly 5 percentage points to that figure and make the state
one of the highest-collecting sales-tax states. Although
extensive activity from energy producers
Haynesville-Bossier shale play
could boost incomes and lead to higher taxes, much of Louisiana's
sales tax revenue comes from out-of-state tourists visiting the
state, leaving the actual amount borne by residents even lower. A
6% income tax isn't enough to push Louisiana out of the top
Living isn't just about taxes
As we noted
, It's important to remember that the Tax Foundation's
calculations are all based on aggregate measures, and they won't
necessarily reflect your personal Tax Freedom Day. But as a
general rule, choosing where to live can make a big impact on
your total tax liability, and while taxes aren't necessarily the
most important factor in making that choice, they definitely
deserve at least some consideration.
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Fool contributor Dan Caplinger has no position in any stocks
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