GA vs TN sales/income taxes mathmatical analysis

[southman]

Originally Posted by cwkimbro

Just to further that the situation is not always simple based upon how people live and how different people tax....

Many people are self-employed (rather it is a small business or is labor-based). I am, but I travel for work. I do have to pay sales tax for many of the things I buy as business related purchases. The money I make from a business that I must spend for that business does not county as income for income tax, but it does get taxed through purchases on sales tax.

Say I pull in $60,000/year, but in order to make that much I have to spend $20,000 on supplies, tools, merchandise, labor, etc.. I only pay income tax on $40,000 as personal income. The other $20,000 on business expenses have a sales tax attached to them from the purchases of materials and supplies, but don't have an income tax apart of them.

Situations differ greatly between different types of self-employed people

Please answer. If you live in TN and do spend the $20k on business expenses, although you dont file with the state, You should be able to deduct those $20k qualifying tax expenses from your federal...????

also, nobody has mentioned that TN is #3 in the USA for being FREE. GA is somewhere on the list, not top 5 i will promise you... Being FREE is priceless.

[cwkimbro]

Originally Posted by southman

Please answer. If you live in TN and do spend the $20k on business expenses, although you dont file with the state, You should be able to deduct those $20k qualifying tax expenses from your federal...????

also, nobody has mentioned that TN is #3 in the USA for being FREE. GA is somewhere on the list, not top 5 i will promise you... Being FREE is priceless.

Wow this thread is old....

The OP and myself are also forgetting about personal deductions and exemptions that lower income tax liability at the state and federal level....



To answer your question... yes.

It depends on specifics and a little bit of clarity to what you're asking.

On the Federal tax form, which Georgia Income tax mostly piggy-backs from and replicates with a couple differences, a small business/self-employed person fills out a Schedule C.

The Schedule C is basically totaling and declaring all of your business expenses (and there are rules defining eligibility of each expense; some more 'grey' than others).

This means if I buy $3000 in tools/year to operate XYZ contracting business, I don't have to pay income tax on that $3000 for those tools. I only pay on what what my non-business personal income is after business expenses.

Now the sales tax on the those business purchases are a business expense and are included on the Schedule C, so the sales tax in both states for those purchases aren't taxed at the federal level (and state level for GA)

GA piggy-backs off the federal return. They talk all of the calculations I already have from the Federal Return for my state return.



Ok the next part...beyond business expenses and switching to the personal income. The Federal government in figuring out deductions allows people to deduct what they spend in state taxes, but the catch is only income tax -or- sale tax. The latter being harder to calculate and keep record of.

So in TN you can take federal deductions on your state sales tax paid and in GA you will take a deduction on your income tax paid.

But with the tax law changes... this becomes moot and complicated starting next year. Under the new plan everyone can combine both income and sales tax for deductions, but the total amount of this deduction is limited to $10,000.

Also they are removing the "personal exemption" and making the "standard deduction" much higher to make up for this ($12k for a single person).

Basically what this means is many people will start using the standard deduction far more often than in the past (ie. doing taxes will get easier for many), but it can affect some upper middle class filers.



Now what holds true and my original point. In Georgia I can atleast not have to pay income taxes on my business expenses (via Schedule C), however in both states I still have to pay sales tax on purchases for my business expenses.

So when I pay $3000 for tools in TN and $3000 for Tools in GA, my "business" pays more in TN.

TN has an avg tax rate of 9.46% and GA is 7% (both vary with city/county)

In TN my business expense with sales tax is $3,283.80 and in GA that business expense is $3,210 just for that one category of $3,000 in purchases as a 1099 self-employed person there is an increase in $73 in taxes in TN, than in GA.

This is what happens as a state relies more heavily on sales taxes vs. income taxes. There are always nuances that help some out and hurt others small amounts at a time.





In all I'm confused by the final point. No state is free. Any list that says so is misleading at best!

The overall point of this thread isn't really worth thinking into too much for the average person. Both states are low-tax states. There might be some people in particular circumstances where differences matter, but for most the differences are less important vs. where you can find a successful job, who pays more, and where you are happier. These are all more important.


Just look at this from a more macro level... https://en.wikipedia.org/wiki/State_..._United_States

Georgia ultimately collects $1,933 per capita some way or another.

Tennessee ultimately collects $1,925 per capita some way or another.

As a self-employed person with business expenses, there are a series of pros and cons I would have to calculate out for me personally... but the extra sales tax on my small business purchases already hurt me more than the per capita collections just on that one $3,000 expense category I have.


The biggest difference is likely to be for the low-income population. They effectively don't pay income tax (or very much income tax) once they take all their personal deductions, exemptions, etc... A greater part of their income is sheltered from paying taxes.

In TN, they are still taxed all the same license fees, sales tax, etc... No part of their income is sheltered as they have to spend it all to survive.

So GA is slightly more flat and not as regressive overall (income tax is progressive, but most other forms of taxes are regressive relative to income).



(sorry I didn't mean this to be this long... I just kept typing.... )

[Johnhw2]

Property tax effective rates are much larger impacts than sales tax. TN is a very low property tax state and while Ga is a low property tax rate state there is about a 0.35 of market value difference between these two states. On a 300k$ home that is a difference of $900 per years higher property tax in ga for the same priced home as in TN. OF course property values can vary driving another difference.

[cwkimbro]

Originally Posted by Johnhw2

Property tax effective rates are much larger impacts than sales tax. TN is a very low property tax state and while Ga is a low property tax rate state there is about a 0.35 of market value difference between these two states. On a 300k$ home that is a difference of $900 per years higher property tax in ga for the same priced home as in TN. OF course property values can vary driving another difference.

That is a bit inflated.... but the nuances here are far more complex...

According to the National Association of Homebuilders, the average effective property tax rate is .89% in Georgia vs. 0.71% in Tennessee.


First, the state's don't rely on property tax. Just the localities. This doesn't affect state income, so we would really have to dive into the tax differences in counties and cities of the states to understand the situation. This is often harder to do vs. state-level data.

Georgia allows a Homestead Exemptions of different types for different groups, but they vary by county. Most primary-resident homeowners are eligible for. Tennessee doesn't have this, but has lower rates. This throws off some websites that just take a look at millage rates and assessment calculations. (Also, makes GA slightly more expensive for vacation homes)

The county I'm from has the 4th highest in Georgia with an effective rate of 1.26%, but it gives a $10,000 assessment exemption on local tax, $4,000 assessment exemption off the school tax, and a $7,000 assessment exception on recreation tax. So that effective rate of 1.26% actually drops for most primary homeowners. (FYI, we do assessed values at 40%, so that is the equivalent of $25,000 off the value of the home for the $10,000 exemption).

That particular county also has a 6% (4% state / 2% local) sales tax, when most other Georgia counties have 7%. So we rely more on property tax vs. sales tax.

Overall, Georgia is a touch more expensive, but $900 on $300k house is over-inflated. Looking closer to $500-$600. Half that for the median price home in each state just under $150,000.

But here is the kicker....

In both states this is a local tax and varies broadly within the state. There are areas of Georgia that are expensive and cheap and the same for Tennessee.

Often counties with lots of low-income properties have high rates. Some smaller counties that homogeneously upper-middle class (like Forsyth Co. in Georgia), have lower rates since most home values run higher.

So an expensive property in a poor county and sometimes be more costly. A cheap property in a rich county can sometimes be a large savings benefactor. So if you pick a $300,000 house (which is above the average home price closer to $150,000 for both states), you're more likely to be in a county with cheaper property taxes... or a high-demand urban area with higher wages.

Another issue is large cities often have higher property taxes in both states. There is more local roads, you have to have a sewer system, air testing standards, transit, and usually more perks like better schools and nicer and more parks. That cost increase also comes with the ability to make more money in better paying jobs.

Part of why this matters is Tennessee's population is 33% rural and Georgia's is 24% rural. This is part of the overall cost difference, not all though.

Shelby County has an effective property tax rate of 1.5%

Davidson County has an effective property tax rate of 0.99%. Higher than both state averages.

Now Georgia is more expensive still....

Out of the core counties in Atlanta's metro area (Over half a million people) the effective rate ranges between 0.85% and 1.26%. Some of the wealthier exurban enclaves get cheaper, and they also do in Tennessee.

Rural counties in Tennessee seems to, roughly, stay between 0.5 and 0.75%. In Georgia this seems to fall between 0.6% and 1.0% and varies more widely.


So I wouldn't use property taxes to pick a state, rather you have to consider the lifestyle and look at it county by county (or city) in both states.

But there is some truth to the difference.

[Edgefield D]

There is variation from location to location. Below is how Davidson County (Nashville) property taxes are calculated. For example, I’m in the Urban services district. My assessed value is $444,600 and my annual bill is $3506.79.

Tax Rate

The Metropolitan Council sets the property tax rate. The 2017 tax rate for Urban Services District is $3.155, and the rate for General Services District is $2.755. Residential property tax is based on the assessed value, which is 25% of the appraised value, and commercial property tax is also based on the assessed value, which is 40% of the total appraised value. Collection of property tax comprises 46% of the entire Metropolitan Government operating budget. This includes collection on 25,676 parcels of commercial property and 204,740 residential parcels in Davidson County. There are 5,621 parcels that are tax exempt, and more than 181,815 tax statements were mailed during the year 2016.

[Johnhw2]

My point was not use property tax to pick a state but to ignore property tax variations when comparing states for income and sales tax missed a large item. I do not disagree with your data showing a smaller difference than my source did. Nice long post but this thread ignoring property tax differences in looking at one state versus another tax cost wise is flawed.

My advice to anyone comparing state tax cost to another is calculate it for your situation. And do not ignore property tax differences while getting down in the weeds on sales and income tax comparisons. Also calculate it for different home locations as rates vary considerably within a state as you correctly point out. But when screening two or three locations for consideration to move to the macro or average data by state show Ga higher than TN. Just because property tax can be complicated in many ways do not ignore this material item.

My data was based upon a USA Today article. Ive reviewed 5 sources and agree the difference on average are closer to your source claims than the USA today source.

[Beretta]

Indeed, this is an old thread and tax laws and structures change and can vary annually. Since this is the TN forum and not the GA and TN forum this is a good time to close this thread.