💰 California vs Texas Cost of Living: Tax Savings

People assume moving to a no-income-tax state is an automatic win for your cash flow. But as Ying Sa tells her clients, you have to model it first. Texas makes up for its lack of income tax by leaning heavily on property taxes.

If you are a high-income earner, Texas will likely save you tens of thousands of dollars. But if you have long-held real estate in California, moving could actually increase your overall tax burden.

California taxes ordinary income progressively up to 13.3%. As Ying Sa puts it, California is one of the state imposes the progressive income tax system, which means their rate goes so from 1% all the way to 13.3%. On the other hand, Texas has no state personal income tax. So all the stuff Community CPA is talking about doesn't exist in Texas.

If you maintain business entities in California like an LLC, you are still subject to fees. As Ying Sa notes, California has this $800 minimum annual franchise tax. That's famous. It doesn't matter you make money or not.

This is the big catch. As Ying Sa explains, the revenue model for California is relying on income taxes, but the revenue model for Texas is relying on property tax. Because of Proposition 13, long-time California homeowners pay taxes on an older, capped assessed value. As she notes, the tax rate cap is 1% of the properties assessed value.

In Texas, you pay around 2% on the full market value of your home. As Ying Sa points out, Texas assessment, they don't have Proposition 13. So they assess properties annually at a full market value. Because of this, property tax often material in materially increase after moving to Texas.

Both states lean on consumption taxes to fund local governments. California's combined local rates usually average a bit higher, often between 8.5% and 10.25%, while Texas averages around 8.25%.

Enter your estimated annual spending on taxable physical goods, excluding most groceries, to see how the sales tax difference impacts your bottom line.