5 Key Takeaways from “State to State – Tax Myths, Opportunities and Considerations”

With the rise of remote work and employers increasingly accommodating relocations to retain talent, individuals are evaluating various factors in these decisions – including tax implications. While many are drawn to lower costs of living or proximity to family, the potential to reduce taxes is also a major factor.

The webinar featured Larry Pon, a highly credentialed CPA, financial planner and estate planner from Redwood Shores, California. With over three decades of experience, Larry regularly educates tax professionals and advisors nationwide on tax planning topics. He holds a business administration degree from UC Berkeley and a master’s in taxation from Golden Gate University.

Here are five key takeaways from the discussion:

1) California’s Taxes and the Myth of a Mass Exodus
While the media often highlights a mass exodus from California due to high costs and taxes, the reality is more complex. According to the U.S. Census Bureau, between 2010 and 2022, 8.5 million people left California, while 6.3 million moved in. This results in a net outflow of only 2.2 million people – roughly 6% of the population and hardly a mass exodus. Contrary to popular belief, California is not the highest-tax state. Four states – New York, Connecticut, Hawaii, and Vermont – carry a higher tax burden, with New York City imposing its own city-level income tax.

Source: Tax Foundation

2) State Income Tax Is Only Part of the Equation
While state income tax often draws attention, it’s essential to consider other taxes that vary by state. These include property, capital gains, sales, excise, license and estate taxes. For example, while Florida lacks a state income tax, its property taxes are substantial, and homeowners don’t benefit from California’s Proposition 13, which limits property tax increases. California has no estate tax, but Massachusetts and Oregon impose one, with a much lower exemption threshold compared to the federal level. A holistic view of the total tax burden is essential when contemplating a move.

Source: Tax Foundation

3) Changing Domicile Is a Serious Undertaking
It is highly advisable to work with a tax advisor, attorney and financial advisor to understand the opportunities, risks and considerations of how to change domicile. Domicile refers to one’s legal home, and shifting domicile to a state with favorable tax laws is not a simple task. For instance, moving to Nevada to avoid California’s capital gains tax requires fully abandoning California as a domicile. Physical relocation with the intent to permanently or indefinitely reside in the new state is key. Simply moving to another state only to return a year or two later may not qualify as intent. California’s non-residency audit process is rigorous. State authorities meticulously analyze data – from flight records and school enrollments to voting registration and social media activity – to confirm residency changes. Attempting to manipulate residency status to avoid taxes is a risky proposition, as the state is highly proactive and successful in such cases.

4) Non-Financial Factors Matter
Beyond taxes and finances, there are numerous non-financial considerations when relocating. Some of the key questions to reflect on include:

1. • Are the educational options aligned with the family’s goals?
   • Does the new location offer adequate healthcare access?
   • Is there convenient access to airports and essential flight routes?
   • How will the local climate, including extreme weather, impact day-to-day life?
   • What is the local job market like, and could one find employment if needed?
   • Will employee benefits, such as parental leave, be impacted by the move?
   • How do the local social and political norms align with one’s personal values?
   • Would access to arts, culture, or entertainment be compromised?
   • How will relocation affect proximity to friends, family, and one’s broader community?

5) Tax Shouldn’t Be the Only Driver
While tax considerations are critical in the decision to move, they shouldn’t overshadow broader life and financial goals. The potential tax savings from relocating need to be weighed within the context of a comprehensive financial plan. Will these savings significantly affect one’s long-term financial success or goal achievement? For example, although California has higher taxes than many states, the tax landscape for retirees living off dividends and investment income may not be as burdensome over time. Viewing tax strategies as part of a larger financial-life plan ensures that individuals maintain balance across key areas, including career, social, financial, and physical well-being.

If you would like to view the webinar that this blog summarizes, please reach out to us

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