The State Of State Taxes

Through the years, I have heard people make comments such as “_____ (insert your state of residence) has such high taxes”.  And, yes, it does seem like some states have higher taxes than others, but when speaking of taxes, one should be thinking about what type of tax is being talked about. 

Stop and consider that some states have higher sales tax rates than others and what is taxed for sales tax purposes varies from state to state, i.e., clothes are taxed in New York.  Certain food items may be subject to sales tax in some states.

Real estate taxes are a big topic of discussion.  Yes, in New Jersey we definitely pay our fair share.  But, what is included in these tax bills – usually the local municipality, school district and county.  In some states, they get these type of tax bills but also other assessments for a variety of things, including but not limited to roads, emergency services, even trash pickup.

Income tax rates vary from state to state as well as what is income taxable.  Some states tax retirement income while others don’t.  Some states provide for a deduction for medical expenses, while others don’t.  The differences go on and on. 

Gift taxes are a type of tax that most people do not encounter unless they have the means to be making significant gifts.  Many states do not have state gift taxes, but there are a few that do – California for one.

Personal property tax is a tax seen in some states based upon the value of certain assets at the end of the year. 

Finally, let’s look at death taxes.  There are 13 jurisdictions in the US that impose an estate tax on assets of a decedent at the time of death.  This is based on the overall value of the assets.  New Jersey and Pennsylvania do not have estate taxes.  Then there are inheritance taxes which are usually based upon the relationship of the decedent and the beneficiary.  Yes, both New Jersey and Pennsylvania have inheritance taxes, but there is a difference.  In Pennsylvania, a child inheriting from a parent’s estate is subject to inheritance tax, while in New Jersey this inheritance would not be inheritance taxable.  There are four other states that have inheritance taxes. 

Bottom line – Taxes are hard to escape and we all end up paying taxes in one way or another.  I saw a chart a few years ago that when you analyze all taxes in each state, we all end up paying approximately the same in taxes, depending upon our financial situation (value of assets, income, etc.)  So, let me ask – what’s the best state to live in for tax purposes?  That’s really a loaded question. 

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About the Author

Kay Sowa is a paralegal in the Trusts and Estates Group at Capehart & Scatchard, P.A. She is an IRS Enrolled Agent, an Accredited Estate Planner®, and a Certified Trust and Fiduciary Advisor. She oversees the trust and estate administration practice for the firm. She is an accomplished author and lecturer who has frequently spoken on behalf of a number of organizations including the National Business Institute and the Institute of Paralegal Education.

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