Recently, the Illinois House of Representatives overrode Governor Bruce Rauner’s veto to enact a 32% state income tax increase. The individual rate went from 3.75% to 4.95% and the corporate rate went from 5.25% to 7%. The higher state income taxes could entice more people to leave a state that is already losing population.While taxes are not usually the main reason for moving, they can certainly play a role. Some states use their lower state income taxes to attract residents and economic activity. On the other hand, higher state income taxes can improve schools, roads, and other public services provided by a state.
Since some states use a flat income tax and others employ a progressive tax rate, only the tax rate for the highest income bracket will be examined. Here are the individual income tax rates by state courtesy of the Tax Foundation:
Tax Rate by State:
| State | Tax Rate |
| Alabama | 5.0% |
| Alaska | None |
| Arizona | 4.54% |
| Arkansas | 6.9% |
| California | 13.3% |
| Colorado | 4.63% |
| Connecticut | 6.99% |
| Delaware | 6.6% |
| Florida | None |
| Georgia | 6.0% |
| Hawai’i | 8.25% |
| Idaho | 7.4% |
| Illinois | 4.95% |
| Indiana | 3.23% |
| Iowa | 8.98% |
| Kansas | 4.6% |
| Kentucky | 6.0% |
| Louisiana | 6.0% |
| Maine | 10.15% |
| Maryland | 5.75% |
| Massachusetts | 5.1% |
| Michigan | 4.25% |
| Minnesota | 9.85% |
| Mississippi | 5.0% |
| Missouri | 6.0% |
| Montana | 6.9% |
| Nebraska | 6.84% |
| Nevada | None |
| New Hampshire | 5.0%- Interest and dividends only |
| New Jersey | 8.97% |
| New Mexico | 4.9% |
| New York | 8.82% |
| North Carolina | 5.499% |
| North Dakota | 2.9% |
| Ohio | 4.997% |
| Oklahoma | 5.0% |
| Oregon | 9.9% |
| Pennsylvania | 3.07% |
| Rhode Island | 5.99% |
| South Carolina | 7.0% |
| South Dakota | None |
| Tennessee | 5.0%- Interest and dividends only |
| Texas | None |
| Utah | 5.0% |
| Vermont | 8.95% |
| Virginia | 5.75% |
| Washington | None |
| West Virginia | 6.5% |
| Wisconsin | 7.65% |
| Wyoming | None |
| Washington D.C. | 8.95% |
Here are the 10 states with the highest income tax:
- California- 13.3%
- Maine- 10.15%
- Oregon- 9.90%
- Minnesota-9.85%
- Iowa- 8.98%
- New Jersey- 8.97%
- Vermont- 8.95%
- Washington D.C.- 8.95%
- New York- 8.82%
- Hawai’i- 8.25%
Here are the 10 states with the lowest income tax, including those with none:
- Alaska- None
- Florida- None
- Nevada- None
- South Dakota- None
- Texas- None
- Washington- None
- Wyoming- None
- New Hampshire- None, but 5% on interest and dividends
- Tennessee- None, but 5% on interest and dividends
- North Dakota- 2.90%
As you can see from the chart above, there can be a large disparity in state income tax. California’s top rate of 13.3% is by far the highest in the country. According to Forbes, more than 250,000 Californians left the state between 2013-14, with more than 10% going to Texas where there is no state income tax. For those looking to avoid high state income taxes, domestic moves are the most common way to leave a particular state. In order to take a closer look at domestic moves, here is a map from Business Insider detailing domestic migration:
Top 10 Best States in Domestic Net Migration:
- Oregon- +12.43
- Nevada- +11.99
- Idaho- +10.37
- Florida- +10.23
- South Carolina- +9.62
- Washington- +9.44
- Colorado- +9.22
- Arizona- +9.03
- Montana- +6.64
- Utah- +6.61
Top 10 Worst States in Domestic Net Migration:
- New York – -9.69
- Illinois- -8.89
- Connecticut- -8.34
- North Dakota- -8.27
- New Jersey- -7.47
- Wyoming- -7.41
- Kansas- -6.40
- New Mexico- -4.69
- Maryland- -3.48
- West Virginia- -4.16
The top state in terms of net migration is Oregon. Increased migration to the Beaver State may debunk the theory that Americans are moving to states with lower income tax. Oregon has the third highest state income in the country at 9.90%. However, Oregonians do receive some tax relief, as the state has no sales tax on purchased goods. Three of the top ten states in positive net migration are states that have no income tax: Nevada, Florida, and Washington. Among states that had the ten lowest numbers in net migration, New Jersey and New York were also in the top ten in terms of highest taxes.
So, do state income taxes have a major impact on which states people move to? It is difficult to give a definitive answer one way or another. However, it can certainly be said that Texas and Florida have become more attractive to domestic movers than California. Conversely, Oregon still manages to attract plenty of residents with its high tax rate. No matter what a state’s tax rates are the reality remains that people will choose to move for a variety of reasons. Still, the tax rate remains a major factor to some when choosing to move to another state.
