Taxes are a fundamental aspect of modern society, serving as the lifeblood of government programs and services. However, the way taxes are structured and imposed can have significant consequences for individuals and businesses. In the United States, the taxation landscape varies widely from state to state, with some jurisdictions imposing higher tax burdens than others. In this blog post, we will delve into the comparative analysis of taxation in New York, known for their high taxes, and Florida, hailed as a low tax jurisdiction. We will explore the economic impact of choosing to do business in these states, focusing on business profits.
High-tax states must balance economic competitiveness with revenue needs, while low-tax states risk underfunding public services. This analysis of the divergent New York and Florida tax landscapes argues that the ideal system applies mildly progressive income taxes, eschews estate taxes, and limits corporate loopholes – preserving fairness while fueling growth.
Part 1: New York Taxation
New York is another state notorious for its high taxation. The state levies a progressive income tax, with rates reaching as high as 8.82% for top earners.1
Businesses in New York face a corporate income tax rate of 6.5%, and additional taxes may apply based on the nature of the business. New York City, in particular, imposes additional taxes on businesses operating within its boundaries.
Part 2: Taxation in Florida
Florida is another state known for its favorable tax climate, especially for individuals. Florida does not levy an individual income tax.3
In terms of business taxation, Florida imposes a corporate income tax, but it is relatively low at a flat rate of 5.5%. This business-friendly tax environment has attracted many companies to establish their headquarters or operations in the state.
Part 3: Economic Impact of Low Tax Jurisdictions
One of the most apparent economic impacts of being in a low tax jurisdiction like Florida is the potential for higher business profits. With no individual income tax, entrepreneurs
and high-income earners have more disposable income to invest in their businesses or other ventures. Additionally, the lower corporate income tax rates in these states mean that businesses can retain more of their earnings, further fueling growth and expansion.
This tax advantage has made Florida magnets for startups and established companies alike. The absence of personal income tax, in particular, can be a significant draw for entrepreneurs looking to minimize their tax liabilities while reinvesting in their businesses.
Furthermore, the low tax environment in these states can lead to increased job creation and economic growth. Businesses have more capital to hire and expand their operations, resulting in a positive economic ripple effect.
Part 4: The Business Environment
4.1 Cost of Doing Business
The cost of doing business in low tax jurisdictions like Florida is often more favorable compared to a high-tax state like New York. The absence of an individual income tax can be a significant advantage for employees, making it easier for businesses to attract and retain top talent. This, in turn, can lead to increased productivity and innovation within the state of Florida.
Additionally, lower corporate income tax rates mean that businesses in Florida have more resources available for reinvestment, expansion, and research and development. This competitive advantage can help companies thrive and remain competitive in their respective industries.
This next section we are going to compare the rate for the top brackets between Florida and NY
I can provide a simplified table that compares the income tax rates for individuals earning $200,000 annually in both New York and Florida. Keep in mind that tax rates may change over time, so it’s essential to verify the current rates before making any financial decisions.2
**Income Tax Rates for New York and Florida (2021)**
|Annual Income||New York||Florida|
Now, let’s calculate the potential tax savings for individuals in each income bracket by choosing Florida over New York. For an individual earning $200,000:
- New York Tax: $200,000 * 6.33% = $12,660
- Florida Tax: $200,000 * 0.00% = $0
- Tax Savings: $12,660 – $0 = $12,660
These calculations illustrate the potential tax savings for individuals in each income bracket by choosing Florida over New York based on the 2021 tax rates. Please note that this is a simplified example, and individual tax situations can vary due to factors like deductions, credits, and other taxes (e.g., property tax, sales tax) that may apply in different states. It’s crucial to consult with a tax professional for personalized advice based on your specific circumstances and the most up-to-date tax laws.
Relocating from New York to Florida to save on income tax can be a significant financial decision. Here are some solutions and steps that individuals or families can consider when planning such a move:
- Understand the Tax Differences: Before making any decisions, thoroughly understand the tax differences between New York and Florida. Consider income tax rates, property tax rates, sales tax rates, and any other relevant taxes.
- Consult a Tax Professional: Seek advice from a qualified tax professional or financial advisor who can assess your specific financial situation and provide personalized guidance on the potential tax savings of moving to Florida.
- Establish Florida Residency: To benefit from Florida’s tax advantages, you must establish legal residency in the state. This involves spending a significant amount of time in Florida, changing your mailing address, and updating your driver’s license and voter registration.
- Choose the Right Location: Research different cities and counties in Florida to find the one that suits your lifestyle and budget. Consider factors like cost of living, property values, and amenities.
- Real Estate Considerations: If you own property in New York, determine whether you want to sell it or rent it out. Consider the implications of capital gains tax if you sell.
- Budget for Moving Costs: Moving can be expensive, so create a budget that includes moving expenses, such as hiring movers, transporting your belongings, and setting up your new residence in Florida.
- Review Financial Accounts: Update your banking, investment, and retirement accounts to reflect your new Florida address. This ensures that you are not inadvertently subject to New York taxes.
- Notify Employers and Institutions: Inform your employer, if applicable, of your relocation and update your payroll information. Notify all relevant institutions, such as insurance providers, of your new address.
- Healthcare and Insurance: Review your healthcare options in Florida and ensure that your health insurance covers providers in your new state. Consider other types of insurance, such as homeowner’s insurance, if you purchase a property.
- Create a Tax-Efficient Plan: Work with a tax advisor to develop a tax-efficient financial plan for your income and investments, taking into account the tax advantages of living in Florida.
- Estate Planning: Review your estate plan, including wills, trusts, and power of attorney documents, to ensure they comply with Florida laws.
- Stay Informed: Keep up-to-date with changes in tax laws, as tax policies can change over time. Periodically review your financial strategy to ensure it aligns with your goals.
- Seek Community and Networking: Moving to a new state can be challenging socially. Consider joining local clubs or organizations to meet people and establish a support network.
- Enjoy the Lifestyle: Take advantage of Florida’s climate and lifestyle offerings. Florida offers a variety of recreational opportunities, cultural attractions, and beautiful natural surroundings.
As part of its mission to empower informed financial decisions, the Financial Policy Council regularly publishes insights comparing tax policies across states in its Legacy Matters blog section on Taxation. This research informs the FPC’s advocacy for reforms making tax codes more equitable and economically competitive. FPC members include accountants, tax attorneys, and financial advisors with deep expertise in state tax planning and strategy.
Remember that the decision to move from New York to Florida for tax purposes should be based on a comprehensive evaluation of your financial situation and personal preferences. It’s essential to seek professional advice and plan the move carefully to ensure a smooth transition and maximize potential tax savings.
New York’s steeply progressive income tax rates undermine competitiveness and revenue stability. Lawmakers must find a better balance between fairness and growth.
Florida’s lack of estate tax creates a favorable environment for small business owners to preserve wealth. However, future tax base sustainability is a concern.
Interstate tax competition can improve efficiency but risks a race to the bottom. Federal action may be needed to address distortions.
Readers should use this analysis to inform advocacy for tax reforms in their state and consult tax experts to optimize their personal situations.”
Now let’s review a “C” corporate example:
Certainly, here’s a simplified comparison chart illustrating the tax implications for a business with a $1 million profit before and after relocating from New York to Florida:
Before the Move (New York):
|State Corporate Income Tax Rate||6.5% – 10.9%|
|State Income Tax (Owner/Shareholder)||Up to 10.9%|
Total Tax Liability (New York):
- Corporate Income Tax: $1 Million * Corporate Tax Rate (e.g., 10.9%) = $109,000
- Owner/Shareholder Income Tax: $1 Million * Owner/Shareholder Tax Rate (e.g., 10.9%) = $109,000 (assuming same rate)
After the Move (Florida):
|State Corporate Income Tax Rate||5.5%|
|State Income Tax (Owner/Shareholder)||0% (No state income tax)|
Total Tax Liability (Florida):
- Corporate Income Tax: $1 Million * Corporate Tax Rate (e.g., 5.5%) = $55,000
- Owner/Shareholder Income Tax: $0 (No state income tax in Florida)
- Before the move to Florida, the business in New York incurred both state corporate income tax and state income tax for the owner/shareholder, resulting in a higher combined tax liability.
- After relocating to Florida, the business benefits from Florida’s lack of state income tax on both corporate profits and owner/shareholder income, resulting in lower tax liabilities at the state level.
This comparison highlights the potential tax savings associated with moving from New York to Florida for a business with a $1 million profit. However, it’s essential to consult with tax professionals to assess the full impact of the move, including property tax, sales tax, and other factors that can affect your overall tax picture.
It’s important to note that this comparison focuses solely on state corporate income taxes and does not consider other factors such as local taxes, property taxes, sales taxes, and operational costs, which can vary widely within each state. Additionally, the tax code and rates may change over time, so it’s crucial to consult with tax professionals to get a comprehensive understanding of your specific tax situation and the potential savings associated with relocating a manufacturing company from New York to Florida.
Now let’s look at an S Corporation:
Florida (S Corporation):
- State Income Tax: Florida does not impose a state income tax on personal income or business income, including S Corporation profits. This means that the S Corporation itself does not pay state income tax on its profits in Florida.
New York (S Corporation):
- State Income Tax: New York imposes a state income tax on individual income, including income received from S Corporations. The tax rates vary based on income and filing status, with rates ranging from 4% to 8.82%.
Now, let’s calculate the potential tax liability for a shareholder of an S Corporation with a $1 million profit in both states, assuming the shareholder’s income falls within the highest tax bracket:
Florida (No State Income Tax for S Corporation Profits):
- State Tax Liability: $0
- Federal Tax Liability (assuming the highest tax bracket of 37%): $1,000,000 * 37% = $370,000
New York (State Income Tax on S Corporation Profits Applies):
- State Tax Liability (assuming the highest state tax rate of 8.82%): $1,000,000 * 8.82% = $88,200
- Federal Tax Liability (assuming the highest tax bracket of 37%): $1,000,000 * 37% = $370,000
In this simplified comparison, a shareholder of an S Corporation with a $1 million profit in Florida would have no state income tax liability at the state level, resulting in significant tax savings compared to New York, where the state tax liability would be $88,200.
However, please note that the actual tax implications for an S Corporation shareholder can vary based on individual circumstances, deductions, and other factors. Additionally, this comparison does not consider other taxes, deductions, or credits that may apply. It’s essential to consult with tax professionals to get a comprehensive understanding of your specific tax situation and the potential savings associated with relocating a manufacturing company from New York to Florida.
Disclaimer: Robert Hall & Associates is a tax accounting firm owned and run by Enrolled Agents. This article does not demonstrate a real client. This article was written for demonstration purposes and should not be used as tax advice. Please consult your tax advisor for your specific tax strategy.
If you found this state tax policy analysis insightful and wish to stay updated on the latest tax reforms, consider joining the Financial Policy Council. The FPC empowers members with actionable intelligence to optimize taxes and make informed financial decisions. Visit www.financialpolicycouncil.org to access blogs on tax resources, connect with credentialed experts, and help shape policy conversations.
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