Tax Comparison - Florida Verses Tennessee

Live in Florida or Tennessee? That’s a choice many boomers are faced with when considering the perfect spot to enjoy an active retirement or second home purchase. Both states have unique personalities and enticing features. From the sizzling live music scene in Nashville to the majestic Great Smoky Mountains and everything in between, Tennessee offers a temperate climate and seasonal beauty. Florida — a multi-cultural blend of north and south with a perennially green peninsula — is a water sports paradise with its inviting Atlantic and Gulf beaches and tropical breezes.

In addition to choosing a lifestyle that fits your needs and interests, a cost of living comparison for the two states may be a deciding factor. Your personal budget may include Florida and Tennessee taxes by the type and amount a resident can expect to pay. Like other states, both Florida and Tennessee fund significant portions of their own budgets by some combination of sales taxes, income taxes, property taxes and assorted usage fees. Because there are many variables associated with a tax position, consult your tax professional regarding items that will apply to your personal situation. All information provided below is for 2015, unless otherwise noted.

Personal Income Tax

Florida is only one of seven states that does not impose personal income taxes on any source of income, making it an attractive choice for many. In Tennessee, taxes are not imposed on salaries or wages either. However, interest and dividend income from bonds, stocks and notes is taxable at 6%, with exemptions for income below $1,250 ($2,500 for joint filers), anyone deemed legally blind, and for those 65 and older with income below $37,000 ($68,000 for joint filers). 

Sales Tax and Use Tax

Sales taxes in Florida are set at a base rate of 6%, with local municipalities adding additional sales taxes for an average combined rate of 6.65%. Unprepared food and drugs are exempt from Florida sales taxes. The Tennessee base sales tax rate is 7%, with local taxes adding an average of 2.45% for the highest sales tax rate in the U.S. at 9.45% on average. Food is taxed at 5%. Both states require use taxes equal to the sales tax rate to be paid on items purchased from out-of-state (e.g., Internet sales, catalog sales, purchases brought across state lines) when the item was not taxed by the seller.

Real Estate Taxes

Real estate taxes are generally imposed by local cities and municipalities to operate schools, protective services such as fire and police, and miscellaneous local services. In Florida, homes are assessed for taxation at just (market) value upon purchase, and the maximum increase of that just value is capped at 3% per year beginning the year after initial filing for homestead exemption. This value is portable within the state of Florida, which means a homeowner with a homestead-exempt property can sell one home and buy another within the state without losing this benefit. Homeowners in Florida may receive a homestead exemption on their primary residence up to $50,000, with the first $25,000 applied to all property taxes due. A second exemption of $25,000 applies to assessed values between $50,000 and $75,000, but only to non-school taxes. Additional exemptions are available for widows / widowers, the elderly, blind or disabled, active military or veterans, and survivor spouses of first responders on real property taxes in Florida.

Real estate property tax rates in Tennessee are also set by the local taxing authority and applied per $100 of assessed value, which is determined as 25% of Fair Market Value for residential or farm property. Tennessee doesn’t offer homestead exemptions, but does have special programs for veterans, the elderly, or the disabled.

Real estate transfer taxes and mortgage instrument taxes are paid in both states. Florida levies a $.70 per $100 of sale price in a Documentary stamp tax on transfer deeds for residences ($.60/$100 in Miami-Dade County). In Tennessee, the deed transfer tax is $0.37 per $100 of sales price. The Florida mortgage doc stamp rate is $.35 per $100 with the tax capped at $2,450 per note. In Tennessee the mortgage tax is $.115 per $100 of indebtedness. This equates to taxes on the purchase of a $300,000 home in the amount of $3,150 in Florida and $1,455 in Tennessee.

Personal Property Taxes

Neither Florida nor Tennessee taxes personal or household goods, so there are no property taxes on tangible property. State of Florida resident vehicles must be titled and are subject to annual registration fees. The initial registration fee is $225 and annual registration fees vary by vehicle type from approximately $14 to $46.

Tennessee also requires resident vehicles to be titled and registered, as well as undergo emissions testing in some counties. Annual state registration fees are approximately $25, with certain counties adding a “wheel tax” to that base amount. In both states, vehicle title, tag and registration functions are handled at the local county clerk’s office. Check the website of your target county for additional information on boats and recreational vehicles.

Other Taxes

There are no inheritance taxes in Florida, nor any intangibles taxes (stocks, bonds, mortgages, etc.), or capital gains taxes. Tennessee did impose an inheritance tax through 2015 that ranged from 5.5% to 9.5% on estates over the $5 million exemption limit. However, from 2016 forward the inheritance tax has been eliminated in Tennessee. There are no personal intangible tax or capital gains taxes in Tennessee.

Sunshine or Volunteer State?

Fish or game hunter? Snow or sun for the holidays? Yellow-red leaves and frost on burnt orange pumpkins, or teal water on ivory beaches? Horses or —horses? There are wonderful neighborhoods in all corners of these two states where you can find your perfect place. Home prices vary widely in both Tennessee and Florida, with beachfront properties and toney Nashville neighborhoods commanding a premium. However, when doing a cost of living comparison you’ll find there are many affordable areas in both states offering quality housing in welcoming communities at all price points.

Both states derive most of their tax revenue from sales and excise taxes, with local municipalities taxing real estate. According to Kiplinger’s recent ranking of the 10 Most Tax-Friendly States for Retirees 2016, both Tennessee (#10) and Florida (#6) are great choices. View Kiplinger’s updated Retiree Tax Map for state-by-state comparisons. As with all matters impacting your personal financial situation, always check with a Tax Attorney or Certified Public Accountant to decide the tax advantages that are best for you. The information above is subject to change.

TAX COMPARISON AT A GLANCE

FLORIDA:

  • INCOME TAX – None
  • CAPITAL GAINS – None
  • INTANGIBLES TAX – None
  • SALES & USE TAX – Base rate of 6% plus local tax for average 6.65%
  • REAL ESTATE TAX – Millage varies by municipality and is applied per $100 of assessed value (FMV on last sale capped at 3% annual increase) after homestead exemptions
  • TRANSPORTATION – Gasoline excise tax $.285/gal; Sales tax on full price of vehicles (including trailers and recreational vehicles) plus discretionary sales surtax by county on first $5,000 of purchase; Annual vehicle registration fees $14.50 - $32.30 for autos; Title fees $77 to $85
  • PERSONAL PROPERTY – None
  • ESTATE / INHERITANCE TAX – None

TENNESSEE

  • INCOME TAX – None on wage/salary income; 6% on income from stocks/bonds/notes over $1,250. Persons 65+ with total income below $37,000 are exempt.
  • CAPITAL GAINS – None
  • INTANGIBLES TAX – None
  • SALES & USE TAX– Base rate of 7% plus local tax for average 9.45%
  • REAL ESTATE TAX – millage varies by municipality and is applied per $100 of assessed value (calculated at 25% of FMV) with no homestead exemption
  • TRANSPORTATION – Gasoline excise tax $.214/gal; Single item tax rate limits local taxes to first $1,600 of auto or boat purchase and state taxes at 7% below $1,600 plus 2.75% on amounts $1,600 - $3,200; Annual registration fee $25 plus local fee, Title fee $13
  • PERSONAL PROPERTY – None
  • ESTATE / INHERITANCE TAX – phased out for 2016

Be sure to check with a Certified Public Accountant and Tax Attorney to confirm this information and how it effects you.

Sources:

  • State of Florida Official Website
  • Florida Department of Revenue
  • Florida Department of Highway Safety and Motor Vehicles
  • Bankrate.com> State Taxes
  • The State of Tennessee official website
  • The Tennessee Department of Revenue
  • Ballotpedia > Tax Policies by state

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