New York, California high-tax state exodus just beginning, expert warns

By TaxesFOXBusiness

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The cap on state and local tax (SALT) deductions has already begun to drive some residents away from high-tax states like New York and New Jersey, but experts say that trend is only going to intensify.

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“It took a few months for taxpayers to realize the dollar implications – until they actually filed their tax returns this year,” Alan Goldenberg, a principal at Friedman LLP, told FOX Business. “It quantified the impact of the loss of the SALT deduction when people saw it in front of their eyes on their tax return.”

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The Tax Cuts and Jobs Act introduced a number of reforms, including the notorious $10,000 cap on state and local tax deductions, which has caused Americans to look into establishing legal primary residences in states where they can limit their liabilities.

Since the implementation of the law, Goldenberg said he has “certainly” had some clients relocate. Typically, these are individuals that have second homes in states with a more favorable tax climate – like Florida – along with wealthy people and individuals whose jobs do not require them to be tied to a specific location. The latter category can include people in the service industry or consultants.

States that some Americans have already begun leaving for are Florida, Texas and Nevada, all three of which have no individual income tax.

Goldenberg expects to see “more and more” taxpayers looking to move in the wake of this year’s tax season, which remains ongoing for those who filed for a six-month extension.

Some businesses, too, are looking to move. Those that have other locations in places like Dallas and Houston can more easily relocate, Goldenberg said, but it is difficult for a large company with hundreds of employees to shift its main operations elsewhere.

Some higher-tax states, like New York, have looked into work arounds in order to limit the impact and stem the potential revenue loss. However, the Treasury Department officially squashed one of the more popular options last week, which could also contribute to outmigration.

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As previously reported by FOX Business, while Florida received more movers than any other state last year, New York's outflows to the Sunshine State were the highest – 63,772 people. New York had the third-largest outflows of any state, with 452,580 people moving out within the past year. California, another high-tax state, had the largest outflow of domestic residents – with the highest proportion of people headed to Texas, Arizona and Washington.