Better to live in VA or PA for tax purposes? (Arlington: sales, real estate)

[confetticake]

Hi Everyone -

There were so many helpful responses on my other thread about relocating within 3 hours of Herndon that I wanted to see if someone could help me with this question.

We have it narrowed down to a couple of towns in Virginia or Pennsylvania.

We are wondering if its better for tax purposes to live in VA or PA? PA has lower income tax, but higher sales tax, but not sure if it would just be a wash or not?

We don't plan to purchase a home right away so the property taxes aren't really factoring in. Also - husband will be working in VA - but looks like they have a reciprocity agreement with PA so we would just have to pay the income tax rate of where we resided.

Thanks so much for your help!

PS - If anyone has any other reasons why they would choose one state versus the other I would love to hear them!

[Carlingtonian]

I suspect taxes will be far lower in PA, mainly because the housing costs (and thus assessments) are lower there. (Sales tax is negligible for most people.) However, the vast amount of time he'd spend commuting into VA--along with the money spent in gasoline and miles put on the car--would perhaps be offset by that savings.

[confetticake]

Thanks for the feedback - he won't be commuting because he works from home. He will have to go into the office one or two times per month. We were leaning towards PA - good to know the taxes are probably lower overall.

[kevbros]

Taxes in VA are lower than PA. The Tax Foundation has PA in the top 10 states for overall tax burden.

States with the highest and lowest taxes

PA sales tax of 6% is higher, but PA does not tax food and clothing, while VA does. One of the main differences is in local income tax. VA does not have local income tax, while PA does. Even 1%, which is not unusual is a lot. Property tax in VA is easy; it's based on market value. In PA, it's way more complicated with a confusing system of proprty assessments, but the resulting rates are definitely higher. VA offsets some with the annual car tax.

The one area where PA is hard to beat is retirement. PA basically doesn't tax any retirement income, unlike VA and most states. As a result, lots of people retire to PA or stay in PA. Only Florida has a higher percentage of retirees than PA because of that and it's not by much.

[stpickrell]

OTOH, the difference probably amounts to 1-2% of income a year. If you love love love some place in PA and haven't felt more than 'meh' about places in VA, the $1500 you save in taxes won't help you.

[michgc]

I don't know which is better overall but car insurance is much higher in Pennsylvania. You can call your insurance company and give them the zip codes where you are planning to move and they can give you a quote for each place to compare. Overall I don't think one state is that much worse than the other for that to sway your decision.

[Carlingtonian]

Originally Posted by kevbros

Taxes in VA are lower than PA. The Tax Foundation has PA in the top 10 states for overall tax burden.

States with the highest and lowest taxes

PA sales tax of 6% is higher, but PA does not tax food and clothing, while VA does. One of the main differences is in local income tax. VA does not have local income tax, while PA does. Even 1%, which is not unusual is a lot. Property tax in VA is easy; it's based on market value. In PA, it's way more complicated with a confusing system of proprty assessments, but the resulting rates are definitely higher. VA offsets some with the annual car tax.

The one area where PA is hard to beat is retirement. PA basically doesn't tax any retirement income, unlike VA and most states. As a result, lots of people retire to PA or stay in PA. Only Florida has a higher percentage of retirees than PA because of that and it's not by much.

Interesting. Sounds like PA would be hard to beat for retirement.

Re. other taxes: I still think it would all depend on housing costs. I live in Arlington, which claims to have a low RE tax rate of .97%. BUT the assessed values are crazy high--so the result is that a modest house will be taxed at $6000 or $7000 per year. I suspect in most parts of PA that sales prices are far lower--so the resulting tax would be as well. Now would that savings be outweighed by the local income tax? I don't know.

[kevbros]

Originally Posted by Carlingtonian

Interesting. Sounds like PA would be hard to beat for retirement.

Re. other taxes: I still think it would all depend on housing costs. I live in Arlington, which claims to have a low RE tax rate of .97%. BUT the assessed values are crazy high--so the result is that a modest house will be taxed at $6000 or $7000 per year. I suspect in most parts of PA that sales prices are far lower--so the resulting tax would be as well. Now would that savings be outweighed by the local income tax? I don't know.

But Arlington can only tax you once. In PA, the township taxes your real estate, the county taxes your real estate, and then the school district taxes it, too. It's complicated in Pa, but here is how it works:

MARKET VALUE X COUNTY PREDETERMINED RATIO = ASSESSMENT
ASSESSMENT X MILLAGE RATE = TAX BILL

For example: If the current market value or base year value of Property A is $100,000 and the county’s predetermined ratio is 40 percent, then the assessed value is $40,000 [$100,000 x 40 percent]. The county might levy five mills for the real estate tax; the township in which the property is located might levy ten mills for the real estate tax; and the coterminous school district might levy 20 mills for the real estate tax. The owner of Property A would, therefore, be liable to pay real estate taxes in the amounts of $200 to the county [$40,000 x .005], $400 to the township [$40,000 x .01], and $800 to the school district [$40,000 x .02]. So that would be $1400 for a $100,000 property.

In VA terms that would be 1.4%, but it varies from town to town in PA along with the county's ratio. Could be higher, could be lower. The bottom line is that real estate taxes won't be much cheaper in PA, even if the property is worth a lot less than the VA property.