GA vs TN sales/income taxes mathmatical analysis (how much, hotel)

[keithps]

So a topic that seems to come up rather often in this forum is the fact that TN's sales tax is crazy through the roof. Understandably this makes people think maybe the way to go is to move to GA. This is a rather misguided thought though, as it actually ends up costing you more. So here are some facts:

The TN state sales tax is 7%, anything above that is municipal and varies
The GA state sales tax is 4%, anything above that is municipal and varies
The TN income tax is 6%, but only applies to investment earnings over $2500
The GA income tax is 6% on all income above $7500.

So what I'm going to do is show that the GA income tax is much more financially costly than the high sales tax in TN. So here are some examples:

A household income of $20,000 in GA would have roughly $1200 in state income tax. This would have an income tax of $0 in TN. Because there is a 3% difference in sales tax rates, we can find out how much you have to spend in TN to accumulate $1200 in sales tax. So if you spend $17,000 a year in TN, you pay $1200 in sales tax. But wait! In GA you would also spend an additional $680 in sales tax if you spent $17,000. Turns out, in order for you to pay $1200 more in sales tax in TN than in GA, you need to spend $40,000/yr, twice your income!

So lets take $50,000 household income. The GA income tax would be $3000, and when we take into account GA sales tax, we find that you need to spend $100,000 in TN to have the same tax burden.

There is a pattern to this:

Basically, to lose the same amount in tax in TN as you do in GA, you need to spend twice your yearly income on goods. I doubt many people are doing this, and not for long, for sure.

Yes, there are other taxes in both states, yes its not this simple. The point is, even if I'm off by 100%, you still need to spend the equivalent of your income.

Of course, if you work in GA, this is all out the window, because you will pay GA income tax anyway. But I wanted to make this for people to understand the cost differences between the states.

[dasmarian]

Could you not just divide the total tax income in TN by the number of residents, do the same for GA and determine the avg per capita tax?

[keithps]

Originally Posted by dasmarian

Could you not just divide the total tax income in TN by the number of residents, do the same for GA and determine the avg per capita tax?

You could most certainly do that. However I wanted to produce figures that people could easily relate to. Its simple to say TN has a low tax burden, but that doesn't mean much to people, particularly when they see the tax rates and think they are outrageous.

[An Einnseanair]

Originally Posted by dasmarian

Could you not just divide the total tax income in TN by the number of residents, do the same for GA and determine the avg per capita tax?

You could do that and get a pair of numbers, but they wouldn't tell you anything because the tax burden is far from equal. Different people in different situations have different tax burdens. For example, I'm a civil engineer registered in 10 states. I pay annual or biennial renewal fees to every state. My TN renewal fee plus the $400/year "Professional Privilege Tax" is almost as much as all other 9 states combined. As my wife is also an engineer (electrical), we pay a total of $870/year for the "privilege" of being licensed in TN.

Other missing bits:

• It is true that TN does not tax income from wages, salary, tips, etc. But TN does have an income tax - the Hall Tax (http://tennessee.gov/revenue/tntaxes/indinc.htm - broken link) is 6% and applies to investment income (dividends, interest, etc.).
• At the exact opposite end, GA does NOT tax retirement income (including the very things that the Hall Tax affects), so that equalizes the tax burden a bit.

So from a purely tax-burden standpoint, if you're a normal working adult earning a salary or hourly wage then TN is the cheaper state by a long shot. The calculations made by the OP are correct. Professionals who have state licenses (doctors, engineers, hair dressers, lawyers, etc.) have a higher tax burden, but I still think it's cheaper in TN. People with a significant portion of their income from investments are pretty much equal, maybe leaning GA because of the sales tax. But if you're over the age of 62 and specifically if a significant portion of your income is from non-exempt investments, then GA gets the nod.

Please note that the previous generalizations do NOT take into consideration real-estate property taxes, personal property taxes (you pay GA a tax on things like cars, boats, etc. in addition to the cost of the tag), property values, general cost of living, weather, preferred SEC football team, etc.

[WOWAddict]

Other things to take into account are

1) State income taxes are deductible from your Federal income tax and its dollar for dollar, I am pretty sure that is the case but I live in FL so I do not need to know how state income tax works.

2) There are deductions to the state income tax.

Now I do not think those things will even it out just something else to throw in the equation. I personally would rather pay a tax a higher sales tax then an income tax.

[earthlyfather]

to consider.

Hi there,
Interesting discussion. In Georgia, where we currently live, food and I believe Rx too are exempted from sales tax. Not sure about TN. The other thing is that property tax can very widely within a particular state, with exemptions, reductions and even type of assessment. For instance, we live in North Georgia, where if your property is considered a "view lot', then it is appraised at a higher value. So, while paying the same millage rate, it is at a potentially much higher appraised value.

I guess my point is this. There is no one formula that one can apply to say that one state is cheaper then the other. Like politics, it is all local. or, at least partially so.

[ladylbg]

Very interesting info - we are torn between the 2 states also. How do you think the difference would be affected if one person is retired and one person is still working?

[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

[trinityjoy]

Not that i know much about what we are talking about but I do have a question about this because we are moving to TN. Say my hubby works and makes 40,000. Where we live now we pay state tax but at tax time we get almost all of what we paid in back, so how does that work in TN? Do you not file state tax's? Also is it the sales tax at 7% on food too (here if you can eat it you dont pay)? When we were there it seemed we paid alot more in tax, so each city must add more, we also paid more in tax on our hotel. If you could explain this to me that would help..We are still moving because I just love TN and would pay more to live there I just kinda wantedto know how it all works. Thanks!

[keithps]

Originally Posted by trinityjoy

Not that i know much about what we are talking about but I do have a question about this because we are moving to TN. Say my hubby works and makes 40,000. Where we live now we pay state tax but at tax time we get almost all of what we paid in back, so how does that work in TN? Do you not file state tax's? Also is it the sales tax at 7% on food too (here if you can eat it you dont pay)? When we were there it seemed we paid alot more in tax, so each city must add more, we also paid more in tax on our hotel. If you could explain this to me that would help..We are still moving because I just love TN and would pay more to live there I just kinda wantedto know how it all works. Thanks!

Unless you also have over $2500 in investment income, you simply don't file in TN. As far as sales tax goes, if I recall correctly, food is taxed at 5% and everything else at 7%. Of course, like everywhere, cities add their own tax. Most places are going to be around 9.5% by the time its all said and done. Of course, the upside is that if you don't spend it, you don't pay tax, unlike most states where you get taxed on your income regardless of how much you spend.