Here in Minnesota it is common for people to avoid the winters by having a second home in a friendlier climate.  Usually that means California, Arizona, and Florida.  There are a lot of rules about residency and I have blogged about that before, but let’s dive a little deeper into the tax situations of those snowbird states.

In Florida everyone seems to know there is no state income tax.  What people don’t always realize is that there is a 6% sales tax, plus property taxes to go with a 5.5% corporate income tax which make up for the lack of income tax.  For snowbirds, there is no estate tax in Florida.

In Arizona the tax situation is much simpler than in Minnesota.  The tax rate is lower  –  much lower.  The top rate in MN is now 9.85%, but the top individual tax rate in Arizona is only 4.5%.  As always there are a few state-specific, quirky things.  The strangest thing I have run across is a personal property rental tax which is applied to gross rents on a rental property.  The tax rates vary depending on location, but it can be around 1 or 2%.  Another big difference between MN and AZ is the gift and estate taxes.  Both are non-existent in Arizona.

In California the tax situation is brutal; yes that is the technical term for it.  The top individual rate is 13.3%.  The property taxes are quite high with the value of property being quite high.  Sales taxes are around 7.5% and with the tough budget situation in California, taxes just keep going up.  The only bright spot is the estate tax which doesn’t exist.

I never recommend moving for tax reasons, but if you are going to move it’s probably a good idea to scope out the taxes in the new state so you can factor that into your budget.

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