Property Tax Rates: Different States, Different Strokes?

[ziggy29]

Yesterday I spent all day in a pre-retirement informational seminar at work. The speaker said something that I thought was pretty perceptive. She said that ALL states have to get their income from somewhere, except for Alaska (due to oil revenues) and Nevada (due to gambling revenues). She suggested that states will generally acquire this revenue through income, property, and/or sales taxes. So, if you are influenced by low property taxes or low/absent income taxes in your choice of location, she said you should realize that at least to some extent you are just "picking your poison".

This is true, of course, but naturally different retirees have different situations so some "poisons" are less toxic than others.

Here in Texas, for example, there is a high property tax and a high sales tax but no income tax. So a retiree who wants to retire in a modest, low-value home, pulls in a decent income and practices LBYM would do very well here. Someone who wants to live in a big house and spend a lot of money on taxable items would be advised to look elsewhere -- such as Oregon, which has fairly low property tax rates and no sales tax.

In that sense, one state's "poison" might kill one person and barely affect someone else. By examining one's own situation and desired retirement lifestyle, we can make educated choices about which poison to pick. It's true that all states get you one way or another -- but as retirees not tied down by a job, it's easier to vote with one's feet for the state that taxes your particular situation the least -- assuming state taxes are among one's primary considerations for a retirement place.

 

[audreyh1]

Not so sure about your pre-retirement speaker - that was way over generalized. IMO different states have different cultures and tax their population accordingly. Some states DO have commercial resource incomes (not just Alaska and Nevada). Some states provide more services than others and therefore have a higher tax burden. You can choose whether to live in a high-services, high-tax state or a state that tries to limit services to keep taxes lower. There are also differences in terms of how much public servants are paid and general labor laws. This impacts the tax burden.

Being from TX I remember discussing these issues with someone from NJ, and believe you me, the cultural/tax burden differences are significant.

So, not all states require the SAME amount of income! And different states draw it from vastly different places.

Audrey

 

[wcv56]

I think you would be foolish not to consider the impact of property taxes. Here in CA I know that I can live in a $600,000 home and pay only $1,000 a year in property taxes and that my assessed value will not increase more than 2% a year. From what I've read here people in NJ & Fl are paying $8-12K per year in property taxes on much cheaper homes with no cap on future increases.

People do move (or not) to reduce their property tax burden. It's probably not the only reason but if I have a choice of areas to relocate to that are similar I would be more likely to choose the place that has a lower or more predictible property tax.

Yeah well I bet that 600K home in California would be about 300K maybe less in many other places. What about state income tax, gas tax, sales tax and tax tax.
Being picky on tax would be more for those who have a limited pension and not much investments for the most part but for my parents who only have limited pension
and social security it was an important factor. I paid for the house they have to pay the taxes.

 

[Rich_by_the_Bay]

Yesterday I spent all day in a pre-retirement informational seminar at work. The speaker said something that I thought was pretty perceptive. She said that ALL states have to get their income from somewhere, except for Alaska (due to oil revenues) and Nevada (due to gambling revenues). She suggested that states will generally acquire this revenue through income, property, and/or sales taxes. So, if you are influenced by low property taxes or low/absent income taxes in your choice of location, she said you should realize that at least to some extent you are just "picking your poison".

I agree. There are very few times in our lives where we have the opportunity to just randomly pick a place to live -- jobs, family and other factors usually dominate that decision. Retirement is one stage where a lot of people can make this choice if they want to.

Since all states have to get their money from somewhere, choosing one where the revenue sources line up best with your personal situation (e.g. state income tax is a killer in your peak earning years, but maybe not in retirement) can make a big difference in your income.

An extra $5k per year forever can make a big difference to some - at the holy graal of 4% SWR, it's like an extra $125,000 in the nest egg.

Personally, other factors will drive our decision but if it's a toss-up, I'll pay attention to the tax issues.

 

[wcv56]

All taxes by state
Taxes by State


just click on one of the state sections
States are listed alphabetically in three sections:
Alabama-Iowa, Kansas-New Mexico, New York-Wyoming

 

[W2R]

If retirees could be categorized by whether their situations would benefit most from low property taxes, low sales taxes, or low income taxes, then I am not entirely sure where I would fit in. I think I will get clobbered by a significant tax of any of these types. Maybe the property tax would be the worst for me, since in lean years my income would be low and I could stop buying things as I LBYM, but I would still have to pay property tax.

I remember the high property taxes in College Station, Texas, when I lived there. We paid a gargantuan school tax as part of our property taxes, and consequently my daughter attended some very fine public schools.

Still, one can live out of town and avoid such high school taxes. I would certainly seriously consider moving to Texas if it wasn't for the fact that Frank doesn't want to live there. There are other states that I like that interest both of us. We are becoming more and more certain that southern Missouri is right for us. They are not especially low in any one type of tax. The overall tax burden in Missouri is reasonable (though not rock bottom).

 

[ziggy29]

I remember the high property taxes in College Station, Texas, when I lived there. We paid a gargantuan school tax as part of our property taxes, and consequently my daughter attended some very fine public schools.

When we lived in Houston, we had a house assessed at just under $200K on which we paid nearly $5000 in property tax.

We downsized to a small, older home in the Hill Country four hours to the west last year. This one is assessed at about $85K and the property taxes this year will be about $1300.

If we wanted to live in a big, expensive house, Texas would be a terrible place to do it in terms of tax avoidance. But with a small home, an LBYM lifestyle and a pretty solid income (at least for now), it's a good place to be.

 

[honobob]

Yeah well I bet that 600K home in California would be about 300K maybe less in many other places.

Not sure what that has to do with property taxes as the services I get are the same as the guy next door that pays $6,000 per year and probably close to what most people get as property owners. Hell, I could sell my CA home and buy 6-7 houses in some areas or buy your $300K home and have $300K cash in my pocket.




What about state income tax, gas tax, sales tax and tax tax


It's like Ziggy29 said, "pick your poison" My statement was that I can predict my property taxes 20 years into the future. The OP mentioned 80% yearly increases. I own property in Vegas also (they have no income tax and recently passed a cap on property taxes). At some point it might be better for me to declare that as my tax residence.

Being picky on tax would be more for those who have a limited pension and not much investments for the most part but for my parents who only have limited pension
and social security it was an important factor. I paid for the house they have to pay the taxes.

Being picky for me is choosing how I spend my money no matter how much I have. Seems that people with alot of money are more concerned with limiting the amount of taxes they pay than people of lesser means who just take the standard deduction.

 

[Moemg]

When I moved to Florida in 1995 it was very affordable. Then things went crazy with the property taxes and the homeowner's insurance so just because someplace is affordable now doesn't mean it will stay that way .

 

[W2R]

When I moved to Florida in 1995 it was very affordable. Then things went crazy with the property taxes and the homeowner's insurance so just because someplace is affordable now doesn't mean it will stay that way .

That's a very good point. Missouri is going to start slowly rolling back their state tax on Social Security. We didn't even know that was in the works when we first starting thinking about it as an ER destination.

 

[MileKing]

I’m surprised that a number of people don’t consider taxes to be a very important item in choosing where to retire to. For all the attention given to SWR, costs of health insurance in ER, and other monetary issues in these forums, one would think taxes would rank highly when looking at potential retirement havens. I suppose some could have well more assets than needed for ER so that an extra few thousand a year in taxes is irrelevant. Or perhaps people have fallen for the “pick your poison” line and believe at the end of the day there is little difference in one’s total tax spend from state to state or locality to locality. The information at the link cited by wcv56 should be enough to put those notions to rest. And while that analysis is very good, it is based on averages and thus does not fully address the true range of differences for individuals. When one considers individual situations and assesses thing like age, local sales and property tax differences, % of ones’ financial assets in tax-deferred versus taxable accounts, source of income (pension or not), social security as a % of total income, etc., a $5K difference in taxes per year for someone drawing $40K is easily foreseeable and I would not be surprised if the potential differences state to state are significantly larger.

 

[audreyh1]

Well it sure kept me from moving from Texas after ER! Considered NM or CO, but their 5%? state income taxes very quickly dissuaded me.

I never owned an expensive home in TX, so property taxes didn't seem so onerous (and now living in a motorhome, no property taxes). With ordering most of our big ticket items over the internet, the high sales tax didn't bite too hard.

I figured that income taxes on investment income/cap gains would hit me way harder than property or sales taxes.

Audrey

 

[ziggy29]

With ordering most of our big ticket items over the internet, the high sales tax didn't bite too hard.

Don't say that too loud. The state rev'nooers may come looking for you.

 

[WM]

As a couple of people have pointed out, I think it's very hard to know what's going to happen if you plan to pick a retirement location and stay there long-term. Here in Colorado Springs, the property taxes have been quite low for at least a decade, and local infrastructure is starting to show it - we actually had a bridge partially collapse for lack of maintenance! Wasn't a high enough priority in the overstretched budget.

My view is, if you want a certain level of public services (fire, police, public health, road maintenance) then someone's going to have to pay for it eventually. Seeing what's going on around here, I think I'd rather be somewhere that's more pay-as-you-go.

 

[Rustic23]

I have been out of pocket for the last week, so I'll comment on several statements.

I agree that one should find a place they like to live. However, the cost of living in that area certainly has an effect. I would consider the cost of housing, food, clothing, gas, and yes taxes to name a few. I would look at the overall tax burden, however, property tax is an insidious tax. Seldom does ones income double in 7 years, but if you buy a home is a depressed area, i.e. Texas in the early 90's, you could easily see a doubling in property values in 7 years, and politicians unwilling to reduce the tax rates. (Next door neighbors property tax has gone from $2K to $K in 8 years. Ouch! if you live on one of those fixed limited incomes! i.e. he is not 65 yet, still 8 years to go) Now if Texas did not depend on this tax so much and say it went from $150 to $800, most people could afford that.

'Pick your Poison'. Yes each state gets it's money from the people. However, some states use sales tax. This is a real boom for vacation states. Someone else pays part of the cost of government for Florida than the residences of Florida. Texas, like Alaska get a healthy chunk of change from the Oil companies for both on shore and off shore drilling. So there is a difference in the amount of tax a retiree will pay.

For me, taxes is just one of the inputs into the equation. It was not a major one, but I still track what those taxes are doing.