Why is NC state income tax so f#@&ing high?

[soupcxan]

Just found out that I'll be working in NC for part of 2005...supposedly the cost of living is lower than my current city in TX, but the state income tax is out of this world: Low bracket - 6.0%; High bracket - 8.25%. AND you don't get to deduct federal income tax paid from your NC return. AND you don't get a break on sales tax, it's about 7%.

http://www.bankrate.com/brm/itax/state/state_tax_home_text.asp

The only states I can see with a similarly redonkulous income tax rate are Minnesota and Oregon.

Can anyone explain why the rates are so high in NC of all places? Are people so desperate to move to NC that they're willing to pay these rates? I would expect high rates in NY and CA...not NC.

 

[johnblake]

There are many states with high income taxes. You're not alone.

HI 8.25
CA 9.3
SC 7.0
DC 9
AK 7
ID 7.8
Iowa 8.98
Maine 8.5
Minn 7.85
Montana 11
New Mex 8.2
Ohio 7.5
Oregon 9

 

[charlie]

It would be interesting to know if those states with
high income taxes have low property taxes.

Texas has no income tax but the property tax is
relatively high, I think.

Cheers,

Charlie

 

[BUM]

Charlie,

You touched on "the big secret". It must be a secret because so few people understand it. States have to run (efficiently or otherwise). It takes tax dollars. How they get those dollars is the question. Income, property, sales and other taxes are the most visible. If the state has low or no property tax it likely has a proportionately hi income tax. The fed's belt-tightening is squeezing state budgets. States are reacting every way they can. The taxpayer has only a few choices. Pay the state taxes, modify your tax exposure, or get out. I wonder if many RE's have moved to escape taxes or if taxes was distant consideration after healthcare, weather, family, culture etc.

It would be an interesting topic. I'll start one. "After ER I moved here beacuse..."


North Carolina is a good example. Taxes are going up, up, up. In the 3 years I've been there my taxes and assesments have jumped.

Escaping to a "low tax state" is risky. Especially once we all get there

BUM

 

[Jarhead*]

It would be interesting to know if those states with
high income taxes have low property taxes.

Texas has no income tax but the property tax is
relatively high, I think.

Cheers,

Charlie

Charlie: This is an interesting topic. Probably very useful if those are two major considerations to somebody trying to decide where to relocate to.

I'll chime in re: Calif. situation.

Calif. state income tax is very punitive for high wage earners. Around $60,000, the 9.3 rate kicks in. (Somebody earning $200,000 a year will be somewhere
in the area of paying $14,000 to the state. Less than $60,000, you would pay 0 to about $l800.00. Hand grenade style figures.
Our property tax figures are very easy to compute.
The taxes are l% of the amount you paid for property.
ie: $400,000 would be $4,000 for property tax.
In the early 80s Calif. passed the Howard Jarvis Prop 13 property tax bill. Prior to that time, your taxes were re-evaluated each year, and a new tax-bill based on current assestments were sent out.
With Prop 13, the max. amount the state can raise your rates is 1% of the old tax bill.
I purchased my house in 1987, the year I retired. I paid $200,000 for the house. My tax bill was $2,000. The property now has a market value of $700,000 to $800,000 and my current tax bill is $2800.00. If I were to sell my property now, the new owner would pay about $8,000 in property taxes.
That's hand-grenade style, Re: taxes in Calif.
Regards, Jarhead

 

[John Galt]

I have no ideas about the NC tax situation but I can comment on Texas. I do not quite agree with Charlie.
Even without a state income tax, I do not find
Texas reat estate taxes all that burdensome.
I have owned real estate in 4 states so have some frame of reference. The income taxes no longer
bother me as my income is so low that they are
insignificant.

John Galt

 

[Telly]

Hi John,

It depends where you live. My RE taxes are about 2.5% of market valuation. 70% of that (and growing fast) is the local school district tax. If you live in an area where there is a lot of growth, or suddenly have it happen all around you, the school taxes really zoom up. Other than moving to a rural area far from towns, I don't think there is anything I can do about it. Sort of a fixed expense, that keeps increasing every year!

It's been a long time since I paid state taxes, but at my current income level it would be a don't care. Actually not paying any Fed taxes right now, first time in many decades! I know that is going to change in the coming years.

But right now, I'm in the unusual position. A total tax reversal from the working days. Back then, would have liked to try to minimize Fed taxes, and local taxes as a percentage of total taxation was sort of a don't care.

Maybe the North Carolina income tax is high to pay for all the pretty fall colors? They just need to assess a Blue Ridge Trail tax. Tax those motor homes on a per-pound basis!

 

[AGuest]

Like Texas, Florida does not have state income tax but property tax in Florida is half of Texas. Home owner insurance is also much much less expensive which is somewhat surprising considering the possibility of hurricanes. I guess 6% sales tax makes up for the shortfall.

 

[soupcxan]

To put my griping in perspective, I have gotten used to no state income tax locales like TX and FL. Even the GA state tax that I paid didn't seem so bad compared to the rates in NC. And since I'm a renter, I would much rather push the tax burden on those who own homes.

 

[Richard_Rosenthal]

I'm always surprised when people move to other states without first understanding the potential added costs involved. And, as pointed out by several commentors, such information is not intuitive. In my case, although MA is a fairly high-tax state, as my retirement income will be mostly pension money, it's money not taxed by this state. Changes the whole calculation.

 

[johnblake]

In most states property taxes are paid to the county, right?
Low income tax states usually make up the difference with a sales tax. That's the way it works in Washington. Here in Hawaii, we have relatively high income (8.25 max), and excise (4%) taxes, and property taxes are very low.

CA's property tax seems very unfair. I'd think it would dampen the state's ability to attract people and businesses.

 

[windedhare]

Like Texas, Florida does not have state income tax but property tax in Florida is half of Texas.  Home owner insurance is also much much less expensive which is somewhat surprising considering the possibility of hurricanes. I guess 6% sales tax makes up for the shortfall.

I've lived in three of I think five states with no state income tax. TX, FL, NH. I would have a really hard time accepting a state income tax at this stage.

IIRC, in Texas sales tax is relatively high, I think its 7.25 with some counties near at 8%.

 

[Nords]

More links to research.

Soupcxan, take a look at Scott Burns' "Geezer Magnets" archives and a paper copy of Bloomberg's "Wealth Manager" magazine. Both have recently published more comprehensive reviews of state taxes-- the whole income, property, and sales package.

Here's another thread on the subject-- http://early-retirement.org/cgi-bin...s_board;action=display;num=1085766663;start=0

 

[moonwalker]

Taxes on everything are high in NC

I'm moving to NC from Hawaii [mod edit]

The sales tax is 6% versus 4% in [mod edit] Hawaii.
The income tax is the same.
The property tax is five times higher! I bought two townhomes last year, one for $120,000 and one for $130,000. The Durham tax office just assessed them at $145,000 and $172,000! Man, if I could sell them for that I'd turn around and do it! The property tax on the larger one is the same as what I paid for my $1.2 million home in Hawaii!!!

Yes, property is cheaper there, and gas is a little less. But I'm finding Hawaii, other than property prices, is WAY cheaper to live than North Carolina!

 

[LakeTravis]

IIRC, in Texas sales tax is relatively high, I think its 7.25 with some counties near at 8%.

8.25% in the Austin area.

We are considering retiring to Florida from Texas at some point in the future, so I was just doing this comparison with a friend in Florida.

Last year, TX is us and FL is my friend:

TX: No state income tax
FL: No state income tax

TX: 8.25% sales tax
FL: 7.00% sales tax

TX: $16K property taxes on $585K valuation
FL: $7K property taxes on $750K valuation

TX: $1400 homeowners insurance
FL: $2200 homeowners insurance

TX: $900 auto insurance, full coverage two vehicles
FL: $2800 auto insurance, full coverage two vehicles

The insurance numbers are skewed as his home has a higher valuation and he drives much more expensive vehicles than we do - I would say that as a percentage of insured value it's pretty close.

States that brag "no income tax" have to make up for it somehow. I haven't yet dug into the details but I would think a state WITH personal income tax could offer a lower cost of living to a retiree in terms of other tax loads (property, consumption).

 

[RunningBum]

Looks like a post that revived this thread was deleted, but I have a suggestion unrelated to the political rhetoric that probably got it removed.

You said that the county or city assessed two properties much higher than what you bought them for. In every place I've lived you can dispute assessments, and that has a much better chance of working after a recent purchase like you've done. Take your purchase records and any other recent comps down to the tax office.

 

[jerome len]

If you want to be happy with the State you live in, compare your taxes to California!

My extended family did.....they moved!

 

[sengsational]

Sales tax on the receipts in my pocket say 7.25% (Charlotte, NC). I've lived here a long time, and if I had to do it all over again, I'd live 20 miles south of here (SC).

 

[JoeWras]

Well, NC is currently going through a bunch of tax reform this year. I don't know how it will all shake out, but we'll see. They've added some fees (like no more free soil samples for farmers during peak times), they've taxed some services, and they've lowered the income tax some.

I suppose NC could try the Illinois model?

 

[sengsational]

Well, NC is currently going through a bunch of tax reform this year. I don't know how it will all shake out, but we'll see. They've added some fees (like no more free soil samples for farmers during peak times), they've taxed some services, and they've lowered the income tax some.

I suppose NC could try the Illinois model?

They RAISED income taxes this last go-around! The tax tables stayed the same, but they changed the amount that was taxable. The old way, they took a lower value from the federal form and add something to it. They changed it to take a higher value from the federal form and subtract some much smaller number, so the result was paying more tax. They'll probably give back a small fraction of what they ran off with last year and tell themselves how great they are.

 

[tmm99]

8.75% sales tax and 9% state tax for me - I live in CA.

 

[Amethyst]

They didn't mess with the Bailey decision, I hope. (Exempts Federal pensions, civilian and military, from NC state tax).

Amethyst

They RAISED income taxes this last go-around! The tax tables stayed the same, but they changed the amount that was taxable. The old way, they took a lower value from the federal form and add something to it. They changed it to take a higher value from the federal form and subtract some much smaller number, so the result was paying more tax. They'll probably give back a small fraction of what they ran off with last year and tell themselves how great they are.

 

[JoeWras]

They RAISED income taxes this last go-around! The tax tables stayed the same, but they changed the amount that was taxable. The old way, they took a lower value from the federal form and add something to it. They changed it to take a higher value from the federal form and subtract some much smaller number, so the result was paying more tax. They'll probably give back a small fraction of what they ran off with last year and tell themselves how great they are.

I'm not going to argue with you.

Suffice it to say, NC tax isn't cheap. But it also isn't the worst. Is that good, bad? I don't know. I lived in FL and loved not having income tax. I've lived in IL and see a different set of problems. My Dad's house is 1/2 value of mine in NC and he's paying 2x the tax. Not great for retirees.

The fact is NC is changing things. We have to see how this shakes out.

 

[M Paquette]

Well, some folks sure seem to pay a lot...

Now, where I live, the sales tax is about 8.5% (ouch) and the top state tax bracket of 9% kicks in fairly low. But...

Heh, heh, heh...

My personal effective state income tax rate is 0.5%. (Federal is even better, at -1.2%. Yeah. Negative tax rate!)

And that state sales tax? Doesn't apply to services (medical bills, etc) or groceries, my biggest expenses.

Oh, and property taxes are locked to 1% of what I paid decades ago, with a maximum 2% annual bump in the payments.

This might explain why folks retired in our little "tax hell" don't flee as often as you might think. Of course, you wouldn't want to move here. Real estate has gone up. Oh, and we have earthquakes. Tidal waves. Poisonous spiders. Deadly mushrooms. And the whole state is about to sink under the waves like Atlantis...

 

[zinger1457]

Charlie,

You touched on "the big secret". It must be a secret because so few people understand it. States have to run (efficiently or otherwise). It takes tax dollars. How they get those dollars is the question. Income, property, sales and other taxes are the most visible. If the state has low or no property tax it likely has a proportionately hi income tax. The fed's belt-tightening is squeezing state budgets. States are reacting every way they can. The taxpayer has only a few choices. Pay the state taxes, modify your tax exposure, or get out. I wonder if many RE's have moved to escape taxes or if taxes was distant consideration after healthcare, weather, family, culture etc.

Yep, our wonderful state legislators in Arizona keep patting themselves on their back for balancing the state budget by using the cut and slash method. They did it by reducing funding to programs (like education) which force the local communities to make up for it by increasing property taxes.