Tax Havens: States with Favorable & Friendly Tax Situations
By Dr. Mark Skousen, Chairman, Investment U
Thursday, May 18, 2006: Issue #536
Thinking of moving to a state tax haven and saving some money? In this issue, we’ll review the states with the friendliest tax setups, including Florida… which just got sweeter…
Three weeks ago, a dream came true. For the past 10 years, I’ve worked to end a nuisance tax in Florida called the “intangibles tax,” a tiny but painful duty on stocks and bonds for investors who live in the Sunshine State.
The intangibles tax was miniscule, equivalent to 1/20th of 1% of assets, affecting individuals with more than $370,000 in investment assets, which brought in only around $100 million a year.
But it was a nuisance for anyone who lived in Florida, because even if you didn’t pay a dime, you were legally required to file a return and list all your investment assets – every stock, bond, money market fund and Swiss bank account you own. (Funny, bank deposits were exempt, and wealthy clients would pay $1,000 for money managers to switch assets into bank deposits at the end of the year, to avoid the tax.)
Yet, it took 10 years to get rid of it, and even then only at a time when revenues were booming in Florida. It was kept on the books because it was considered a “rich man’s tax,” and therefore didn’t generate a public outcry.
Most investors simply pleaded ignorance, or broke the law. Florida tax authorities were brazen in discovering cheats. They’d look at federal returns to see who sold stock and therefore owed the tax. They could even throw citizens in jail for failing to report.
But the good news is in: The Florida intangibles tax was repealed by the Senate and House three weeks ago.
Why Florida Is the Quintessential Tax Haven State and Still Booming
It’s another good reason why millions of Americans are moving to this first-class tax haven. Warm weather isn’t the only reason Florida is now the third-most-populous state in the Union (behind California and Texas). Its own constitution prohibits an income tax. The sales tax is 6%. And like California, real estate taxes can only increase 1% a year.
I own a delightful book called Florida Isn’t Heaven. It describes in detail all the bad things about Florida: the hurricanes, the sweltering humidity, the bugs and the mosquitoes, the alligators and snakes, the large number of retirees, the traffic But it’s all tongue-in-cheek to keep Northerners away from paradise. There’s still plenty of room in this wide-open state, and plenty of money to be made in real estate investments and business. It’s even growing in culture and sports.
Haven States with Favorable & Friendly Tax Situations:
Competition between states is a good thing. Here’s a list of tax haven states with favorable tax situations (and also my personal favorites):
1. New Hampshire:
My friend and investment writer Richard Band thinks the Granite State is the best tax haven, the only state with no income tax and no sales tax. But it does have two drawbacks: a 5% tax on dividend and interest income, and a winter that lasts seven months a year. Real estate taxes are also very high.
Tennessee, like New Hampshire, has no state income tax, but does impose a 7% sales tax and a small tax on interest and dividends.
2. Border havens:
Washington/Oregon, Wyoming/Montana: Washington has no income tax; Oregon has no sales tax. Solution? Live along the Washington-Oregon border. Vancouver is a favorite choice. Pay no income tax, and buy all major purchases in Oregon. I used to live in Portland, so my parents suffered a double whammy. The biggest drawback: living in a rain forest. You can go for six weeks sometimes without seeing the sun.
Wyoming/Montana or South Dakota/Montana offer a similar arrangement: No income tax in Wyoming or South Dakota, no sales tax in Montana. Live along the border and enjoy the big sky of tax freedom.
If you like extremes in weather, there’s nothing like Alaska. No income tax, and no state sales tax (but note: Most cities impose a sales tax between 1% and 7%). Amazingly, the state of Alaska sends all residents a large check every year from its Alaskan oil revenues, known as the Permanent Fund Dividend Account. Last year, each citizen got a check for $845.76.
I’ve been to Alaska several times and have always admired the beauty of the landscape and the rugged individuals who live there (though, why they support building “bridges to nowhere” is beyond me). The biggest financial drawback is that you might lose more in purchasing power than in tax savings. The cost of living is 30% more in Alaska than stateside.
Another good tax haven: No income tax and a growing economy. Sales tax is 6.25%.
No state income or corporate tax, and a business-friendly environment in a booming state. Sales tax is 6.5%. Many transplanted Californians who once looked at the state as a tax haven are now moving to Nevada to avoid the high tax and regulatory environment.
Good investing, AEIOU,