How Much Do Taxes Impact Where One Chooses to Live?

I can still recall a friend --with whom I taught CCIM courses around the country-- telling me he was moving out of his state.  He was moving from “back east” to Nevada.

Of course, I asked the “normal” follow-up question?  Why move?

Did he have friends or family in Nevada?  No, he answered.  His reason for moving was simple:  Save Taxes.

I certainly, much akin to all of us, do not like paying taxes.  But to move from your “home state” to another state “just to save taxes” seemed a bit extreme to me.  On further thought and reading more over the years as to the burden of taxes, I understand what concern there is for the state tax burden.

After all, a move that saves you say 20% in taxes is equivalent to a 20% raise, give or take for other adjustments.  This can be a major amount in many instances.  After all, many a worker has switched jobs and/or locations to gain a 20% increase in income.

Interestingly, the Tax Foundation, a non-profit group, covered this same issue of “migration to save on taxes,” when it issued an article in September of 2024 on this particular issue.

In fact, as noted by the Tax Foundation, the IRS issues Migration Data on this exact point.  (Of course, many companies keep data on moves from one state to another state.  See for example the information on this issue released by U-Haul and other moving companies.  However, such data does not disclose in most instances the reason for the move.)

The IRS data showed, per the Tax Foundation reporting, that between the years 2021 and 2022, 26 states had a net gain in taxpayers filing income tax returns.  Once again, this does not mean that such moves were generated because of a desire to save taxes.  There are personal, political, and many other reasons people choose to move.

However, the general news has carried many stories of the huge increases in population in Florida, Texas, NC, SC, and TN-- among other states.

Colorado is one state that had a slight loss of population of residents of 4,172 over the time noted.  (The Tax Foundation article noted above provides data for all states.)

The Tax Foundation concluded that there “is a strong positive relationship between state tax competitiveness and net migration.”  The Tax Foundation concluded: “Overall, states with lower taxes and sound tax structures experience stronger inbound migration than states with higher taxes and more burdensome tax structures.”

Of course, there are many types of taxes to consider.  There are income taxes, sales taxes, wage taxes, etc.  One major consideration for older taxpayers is whether the state in question has an inheritance or estate tax that applies for one who dies in the given state that assesses such tax.  This tax, alone, has caused some folks to move from one state to another to avoid such death tax.

When income taxes are the focus, where the given state does not have an income tax, it adds to the attractiveness to move to such state.  This explains, in part, why Texas, Washington state, Nevada, and Florida are a few states that gain potential residents because they have no income tax.

The message from the Tax Foundation is that state legislators should be cognizant of the impact of taxes on the decision by a taxpayer to locate in a state.

By

Dr. Mark Lee Levine, Professor, University of Denver