A median-wage earner who moves to Nevada from a state with a higher tax burden could save up to $7,728 per year in reduced financial obligations, a new analysis found.
A study published by the website HireAHelper.com this month ranked Nevada the jurisdiction with the second lowest overall tax burden, based on an examination of income, sales and property taxes in the 50 states and Washington, D.C.
“Nevada does not levy any state income tax, and that is a big draw for it,” researcher Elyssa Kirkham, the author of the HireAHelper report, said.
The report is designed to help people considering moves across state lines get an idea about how their tax obligations would change and to get a better sense of whether such moves would be worthwhile, according to Kirkham.
“Taking a cut in pay could make sense if you’re able to live much cheaper,” she said.
Nevada’s dollar-for-dollar effective tax burden was $2,002, according to the report, and that amount translates to an effective tax rate of 4.4 percent. Only Tennessee had a lower tax burden – $1,970 – while Washington, D.C., had the highest overall tax burden in the nation at $9,730.
HireAHelper focused on income, property and sales taxes because they are levied by a majority of states and are easy to compare, according to Kirkham.
“We chose these three tax types because they’re very commonly levied taxes,” she said.
Nevada is among eight states that don’t levy state income taxes, the study says. The state funds public services mainly through its sales tax revenues, which are buoyed by Nevada’s ability to attract tourists, Kirkham said.
The study calculated sales tax numbers by adding up state sales taxes and average local sales taxes. It then presumed that the spending rate would amount to 27.5 percent of states’ mean wages.
But the HireAHelper analysis does have certain limitations. It didn’t consider such financial issues as higher education tuition costs, gas taxes, and licensing and other fees. Gas taxes would affect workers who have to travel a lot to earn a living, according to Kirkham.
Meredith Levine, director of economic policy with the Kenny Guinn Center for Public Priorities in Las Vegas, said Nevada’s overall low tax burden serves to attract individuals and businesses to the state, but there are some downsides to Nevada’s fiscal policies.
“The tax structure offers considerable quality-of-life benefits to Nevada's residents,” Levine said in an email. “But the system can become strained, particularly during economic downturns, when the relatively volatile sales tax on which the state depends so heavily can supply a diminished share of revenue.”
The result of that dependence can be the need to cut funding to government programs and social services, according to Levine.
“As the population continues to grow, this may become a greater concern," she said.
But the state’s economy is currently doing well, Levine said. Nevada tied with Idaho for having the second-fastest growth rate in the nation, and its job growth continues to exceed the national average, she said.
“According to data from the Department of Employment, Training and Rehabilitation, five of the seven fastest-growing jobs in the state (e.g., software developers, industrial engineers, etc.) are also in the top 10 percent highest-paid jobs in Nevada,” Levine said.
Nevada also faces a shortfall of skilled workers that is possibly exacerbated by high housing prices, she said.
Randi Thompson, Nevada state director of the National Federation of Independent Business, said the state’s tax system has fared well in a number of recent studies, including one by WalletHub.com that found Nevada ranked fifth in lowest overall state and local taxation.
“When it comes to attracting higher-paid, more-skilled workers, it does help that Nevada has no state income tax,” Thompson said in an email. But she added that a number of other factors contribute to Nevada being a state that attracts people and businesses.
“It also helps that we have great outdoor attractions, a lower cost of living and a lot less traffic than some of our neighbors,” she said. “Our housing costs are much lower than California’s, and our rush hour lasts about 15 minutes.”
The state’s economy is generating higher-paying jobs, while the lower cost of living in Nevada gives consumers more bang for their buck than they would get elsewhere, according to Thompson.
“We have a growing tech and manufacturing sector that is offering higher-paying jobs, which is attracting skilled workers who are looking for a place where not only will their paycheck go further, but they can reach and maintain a work-play balance,” she said.