Politics

Which US States Are Considered Among The Top Tax Havens?


The U.S. now ranks as the world’s No. 2 tax haven, giving shelter to more money than any other country except the Cayman Islands, according to the Tax Justice Network, which researches tax havens and secrecy jurisdictions and promotes new international rules to curtail tax evasion.

A handful of U.S. states have become increasingly competitive with offshore tax havens. These states are giving the Bahamas, Cayman Islands and Malta a run for their money as shelters for global capital, hidden from law enforcement, creditors and tax collectors, according to an investigation by the International Consortium of Investigative Journalists (ICIJ). That investigation was published as a report called the Pandora Papers.

In an evolving labor environment where people are switching or quitting jobs during the covid-19 pandemic, those who work from home can save thousands of dollars just by moving to a state with a favorable tax rate.

A multitude of taxes—property, license, state and local sales, property, inheritance, estate and excise taxes on gasoline— eat away at your disposable income, according to TurboTax, a provider of tax preparation software.

Different U.S. states specialize in different financial vehicles to help people hide money. In Florida, it’s the all-cash condo purchase. In Delaware, it’s a limited liability corporation. In South Dakota, it’s a dynasty trust — a three-part legal vehicle that has become increasingly popular as a way to transfer wealth between generations without paying taxes, CBS reported.

Here are five U.S. states considered to be among the country’s top tax havens.

Florida

State Income Tax: None
Average Combined State and Local Sales Tax Rate: 7.01%
Median Property Tax Rate: $830 per $100,000 of assessed home value

About 900 people are moving to Florida a day, mainly to escape the “tax hell” in New York and New Jersey, CFO Jimmy Patronis told Fox Business.

Florida is the fifth-best state in which to be rich from a tax perspective, according to WalletHub, a financial website. Florida doesn’t have a state income tax, which keeps the overall state and local tax burden down for middle-class families and rich ones alike. However, other Florida taxes are just average, according to Kiplinger, a publisher of business forecasting and personal finance news.

Kiplinger ranked Florida No. 3 on its list of 10 most tax-friendly states for middle-class families. But Florida property taxes are right around the national average. A $300,000 home in Florida has an estimated annual property tax bill of $2,490 — pretty much in the middle compared to other states.

Floridians who make a middle income with an average salary of $50,000 per year as well as those who earn more than $150,000 a year pay a smaller amount of tax as a percentage of their overall income, Orlando Weekly reported.

People who have moved to low-tax states like Florida during the pandemic could still owe taxes in the state they moved from, a tax advisor told Business Insider. And states with no personal-income tax still have to generate revenue, so they tax other things. For example, Florida has a 6 percent tax on hotel rooms while California has none.

South Dakota

The ICIJ’s investigation identified 201 trusts in the U.S., many of them linked to foreign funds with 81 of those trusts based in South Dakota.

A trust creates a complex legal relationship between three parties: the grantor, who puts money in the trust; the trustee, who manages and directs the trust; and the beneficiary, who receives money from it.

In 1983, South Dakota abolished limits on trusts, allowing them to live on in perpetuity. That change turned the state — which has no income tax, no inheritance tax and no capital gains tax — into an attractive destination for families to park their wealth.

“The beauty of a trust is it puts the wealth into a kind of ownership limbo,” said Chuck Collins, director of the program on inequality at the Institute for Policy Studies. Each of the three parties can point to the others as having final control of the trust. In addition, some types of assets placed in a trust can be dramatically discounted, further reducing their taxable value.

Nevada

State Income Tax: None
Average Combined State and Local Sales Tax Rate: 8.23%
Median Property Tax Rate: $533 per $100,000 of assessed home value

Nevada was one of a handful of states that showed up in the ICIJ investigation as hosting a substantial number of trusts — many, linked to foreign funds, CBS News reported.

One of only seven states with no personal income tax, Nevada ranked No. 2 on Kiplinger’s list of 10 most tax-friendly states for middle-class families.

Nevada also has the fourth-lowest average property tax rates in the U.S. A family with a $300,000 home in the state would pay an estimated $1,599 in property taxes each year.

Sales taxes in Nevada aren’t so low. There’s a relatively high 6.85 percent state sales tax rate. The average combined state and local sales tax rate is around 8.23 percent, the 13th-highest in the country.

Delaware

State Income Tax Range: 2.2% (on taxable income from $2,001 to $5,000) to 6.6% (on taxable income above $60,000)
Average Combined State and Local Sales Tax Rate: No state or local sales tax
Median Property Tax Rate: $562 per $100,000 of assessed home value

Delaware has been a tax haven since the late 1800s and ranks at the top among U.S. states providing secrecy for corporations and ultra-high-wealth individuals foreign and domestic, according to Inequality.org, which tracks inequality-related news as part of the progressive Washington, D.C. Institute for Policy Studies.

Delaware is one of four states along with Oregon, New Hampshire and Montana, that does not rely on sales tax for revenue. Alaska only charges 1.76 percent sales tax. The home of the limited liability corporation, Delaware is also favorable to trusts.

Kiplinger ranked Delaware No. 10 on its list of 10 most tax-friendly states for middle-class families.

Delaware’s income tax is relatively high — 6.6 percent if you earn more than $60,000 of taxable income. However, low sales and property taxes make it tax-friendly for middle-class families. Property taxes in Delaware are the seventh-lowest median property tax rate in the U.S. The tax on a $300,000 home is estimated to be $1,686 per year.

Texas

One of seven states that has no personal income tax, Texas has also loosened its trust laws, making it attractive to corporations and the ultra-rich, according to the Pandora Papers investigation. Texas has also attracted people moving from high-tax states like New York and California during the pandemic, leading to reports of an “exodus.”

Tesla billionaire Elon Musk is probably the most famous recent transplant to Texas, having moved there during the pandemic. However he said that he still pays income tax in California for the time he spends there.

The Texas population has grown 15.9 percent in the past 10 years, even faster than Florida’s 14.6 percent rate, according to US Census data, Business Insider reported. Both are around double the 7.4% rate of overall US population growth. Meanwhile, New York’s population grew by 4.2 percent and California’s by 6.1 percent.

Other taxes make up for the lack of personal income tax. Like Florida, Texas has a 6-percent tax on hotel rooms. Texas also has high property taxes averaging 1.67 percent — No. 8 highest in the US, according to The Tax Foundation. And Texas has the 14th-highest sales tax in the U.S. at 8.19 percent.

However, the Lone Star State has the lowest state and local tax burdens in the U.S. and no state estate or inheritance tax. High-end homes and large commercial and industrial properties in Texas also tend to be under-appraised for tax purposes, according to Dick Lavine, a senior fiscal analyst for Every Texan, in a Houston Chronicle interview.

“In addition to lack of disclosure, large firms often abuse ‘equal and uniform’ appeals to lower their appraisal to the ‘median value of comparable properties,’ regardless of actual market value,” Lavine said.

Texas did not make Kiplinger’s list of 10 most tax-friendly states for middle-class families. However, “Texas is a very good place to be rich,” wrote Ray Perryman, president and CEO of Waco-based The Perryman Group, an economic research and analysis firm.

Photo: Waterfront houses in Fort Myers, Florida, by Alexander Westermann / iStock

Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?



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