Avoiding state taxes and the state pen — can it be done?

April is the month when even people who don’t otherwise ever think about taxes think about them. This year has been especially interesting and challenging because of the impact of the Tax Cuts and Jobs Act 2017. A lot of people wound up getting smaller 2018 refunds because of the law enacted the previous year.

While there isn’t much one can do about federal tax obligations the fact that we have 50 different states, with some very different tax laws, inspires many folks to consider where they will reside when they retire. Are there places that don’t tax Social Security benefits, or Civil Service Retirement System or Federal Employees Retirement System annuities? What about on military retired pay, or pensions from a state government? Short answer is yes; you just need to identify what you are trying to shield from taxes, then find a state that lets you do that. Is it worth moving simply to avoid taxes? That of course is your call. If your income is substantial, and the tax haven is a pleasant place to live, the answer may be yes.

Earlier this month this column dealt with state tax laws across the nation. The National Active and Retired Federal Employees Association did the hard work. They checked current laws, changes and recent court rulings on state taxation of income, annuities, etc. NARFE also made available its annual State Tax Roundup which contains everything you need to know. A lot of people said they found the homework NARFE did for its members useful and they passed it on. You may want to do that, too.

Before that column I wrote about an old friend who, when he retired from the General Services Administration, moved to Washington state (no state taxes) but planned to do all his shopping in Oregon (no sales tax). Foolproof, right? Not necessarily. For instance …

On Friday I got an email from a long-time reader whose editing help over the years earned her the title Eagle Eye. She’s a retired Navy captain, a retired IRS worker and former shop steward for the National Treasury Employees Union. Her input and that of some of her coworkers has made this a much better column. Now she’s back with this update of the possible hazards of moving to a tax-free state to shop in a state with no sales tax:

“I saw your column from April 18 and wanted to advise the gentleman living in Washington state, which has no income tax but does have a sales tax, who does all his shopping in Oregon, which has an income tax, but no sales tax, that he is obligated under Washington state law to pay use tax on any purchases which he brings back to WA state.

“Use tax is equal to the amount of WA sales tax that would have been paid, had the item been bought in WA state. In fact, some enforcement personnel from the Washington Department of Revenue are sent to Oregon on a regular basis to note WA license plates in shopping parking lots to note who might be making purchases, especially of high value items, like computers, appliances, cars, furniture, etc. and they then contact them at their WA residence to inform them of their obligation.

“Other Washington residents, contrary to WA law, purchase and/or license cars in Oregon, which has, as you noted, no sales tax, but also extremely low license fees. To be entitled to those low license fees and no sales tax, you need to be a resident of Oregon, paying income and property taxes to that state.

“When you are a resident of WA, and not paying an income tax, paying sales tax to the state in order to fund the state services, is one’s civic duty. Note that if the WA resident was instead shopping [in] a state or country with taxes equal or equivalent to WA, there is no use tax obligation. If you are paying a sales tax lower than that of WA, you owe use tax in the amount of the difference. Purchases from eBay or other internet sellers on which no sales tax is paid also generate use tax obligations. Note that the WA resident who purchases restaurant meals or lodging in Oregon is not liable for use tax on those services, which are used in Oregon.”

Nearly Useless Factoid

By Amelia Brust

Twenty-six years ago, Buckingham Palace opened its doors to the public for the first time as a way to raise money for repairs to Windsor Castle. Attempts to cover the £40 million needed with taxpayer money met widespread opposition. The first tickets cost £8 for adults (today they cost £25 for adults) and within a week of the opening, all bookings for the first three years had filled.

Source: BBC

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