Reading Cost-of-Living Data for Tax Planning and Relocation

Why Taxes Don't Show Up in RPP

BEA's Regional Price Parities measure the price level of goods, services, and rents, what consumers pay at the point of transaction. Sales tax is implicitly captured in goods prices because BEA's underlying data includes the tax-inclusive consumer price. But that is the only tax category embedded in RPP.

State income tax is not a transaction price; it is an after-the-fact deduction from earned income. RPP cannot capture it because RPP is built from price observations, not from withholding tables.

Property tax is not a consumption transaction; it is an annual payment to local government tied to property ownership. RPP includes rents (which reflect what landlords charge tenants, partly funded by their property tax) but does not capture property tax paid directly by homeowners.

These omissions are not flaws in RPP, they are inherent to what RPP measures. RPP answers the question "what do prices look like?" Tax burden is a separate question that requires a separate analysis.

The Four Tax Layers

For relocation analysis, four tax categories matter:

State income tax

State personal income tax rates and structures vary widely. As of 2026:

• No broad income tax: Alaska, Florida, Nevada, New Hampshire (taxes interest/dividends only), South Dakota, Tennessee, Texas, Washington, Wyoming.
• Flat rate: Several states (Colorado, Illinois, Indiana, Kentucky, Michigan, North Carolina, Pennsylvania, Utah, others) tax all income at a single rate.
• Graduated rate: Most other states tax income at progressively higher rates by bracket.
• Local income tax: Several states allow cities or counties to add their own income tax, Maryland (county-level), Pennsylvania (local earned income tax), New York (NYC and Yonkers), Ohio (most cities), Indiana (county-level), Kentucky (local), Michigan (some cities). This can add 1-4 percentage points on top of state rate.

For a $100,000 earner, the highest-tax states (California, New York, Hawaii, New Jersey, Oregon) impose effective state income tax of roughly 6-9%. The no-income-tax states impose zero. The gap is $6,000-$9,000 per year on the same nominal income, enough to change relocation calculus on its own.

Property tax

Property tax is set at the local level (county, city, school district) and varies enormously even within a state. Effective property tax rate (annual tax divided by home market value) ranges from below 0.4% in some Western states (Hawaii, Alabama, Colorado, Louisiana) to above 2% in parts of Illinois, New Jersey, Texas, and Pennsylvania.

For a $400,000 home, a 0.5% effective rate means $2,000 per year in property tax; a 2.2% effective rate means $8,800. Over a typical 20-year ownership period, that gap accumulates to roughly $135,000 in additional outlays at the higher rate.

Several states cap or freeze property tax growth (California's Proposition 13; Florida's Save Our Homes; many state senior freezes). These caps benefit long-term residents and disadvantage new buyers, who pay tax on the full assessed value.

Sales tax

State sales tax ranges from 0% (Delaware, Montana, New Hampshire, Oregon) to 7.25% (California base rate). Local add-ons can push combined rates above 10% in some Louisiana and Tennessee jurisdictions. Combined state-and-local average sales tax for the lowest-tax states is below 4%; for the highest, above 9%.

For a household spending $40,000 on taxable goods (groceries, clothing, electronics, dining), the difference between a 4% and 9% combined sales tax is about $2,000 per year. Some states exempt groceries (which lowers effective burden for lower-income households); some include groceries (raising effective burden).

Other state and local taxes

Specific levies vary: vehicle property tax (Virginia, Connecticut, parts of others), inheritance and estate tax (twelve states), gross receipts tax (Washington, Ohio business and occupation taxes), franchise tax (Texas, Delaware on businesses, indirectly affects employees of small business). These are generally smaller in dollar terms than the four primary categories but can matter for specific household types.

The Combined Tax-Plus-Cost Calculation

For a meaningful relocation analysis, combine the BEA cost-of-living comparison with the tax analysis. The procedure:

1. Pull RPPs. Get all-items RPP for both candidate metros from BEA or PlainCost.
2. Calculate cost ratio. Divide RPPs to get relative price level.
3. Estimate gross income. Use BLS occupational wage data for both metros if changing jobs; use current salary if remote.
4. Apply state income tax to each metro's gross income. Use the marginal rate appropriate to your income bracket. State tax tables are published by each state's department of revenue.
5. Add local income tax. If either metro has municipal or county income tax, layer it on.
6. Calculate after-tax income for each metro.
7. Adjust for property tax. If buying a home, multiply the home value by the effective property tax rate for the destination county or city.
8. Adjust for sales tax differential. Multiply estimated annual taxable consumption by the sales tax rate gap.
9. Compute real disposable income. Take after-tax income, subtract property tax and adjust for sales tax differential, then divide by the personalized RPP for each metro.
10. Compare. The metro with the higher real disposable income wins on the financial dimension.

This is more work than a one-line RPP comparison, but it produces a defensible estimate of which metro actually leaves you with more money to spend. For high-stakes decisions, accepting a job offer, retiring, relocating with a family, it is worth the time.

A Worked Example: Austin vs Denver

Suppose a software engineer earning $150,000 nominal salary is comparing job offers in Austin, Texas and Denver, Colorado. Both metros have similar tech labor markets. The current all-items RPP is 98.1 for Austin and 105.8 for Denver. On RPP alone, Denver runs about 8% more expensive, a meaningfully bigger gap than a quick headline comparison might suggest.

Austin vs Denver: effective property tax rate

The tax layer runs the opposite direction from the cost-of-living layer

% of home value per year

• Austin, TX
  1.85

  Austin, TX: effective property tax rate

  1.85 % of home value per year

  100.0% of the leader · rank #1 · Texas: 0% state income tax

• Denver, CO
  0.5

  Denver, CO: effective property tax rate

  0.5 % of home value per year

  27.0% of the leader · rank #2 · Colorado: 4.4% flat state income tax

What this shows Texas has no state income tax but a property tax rate roughly 3.7x Colorado's, while Colorado's flat 4.4% income tax is offset by a much lighter property tax. This is why the tax layer and the BEA cost-of-living layer need to be computed separately, then combined, rather than assumed to move together.

Now layer in taxes:

State income tax. Texas: 0%. Colorado: flat 4.4% on most brackets. On a $150,000 salary, Colorado state tax is about $6,600. Texas state tax is $0.

Property tax. Texas effective property tax rate runs around 1.7-2.0% in many Austin neighborhoods. Colorado effective property tax rate is among the lowest in the country, around 0.5% effective (after the state's residential assessment ratio). On a $500,000 home: Texas property tax around $9,000-$10,000 per year; Colorado property tax around $2,500. The gap: $6,500-$7,500 per year in Colorado's favor.

Sales tax. Combined state and local sales tax in Austin runs about 8.25%. In Denver, around 8.81%. Rough wash, with Denver slightly higher.

Net tax effect for a $500,000-home homeowner: Texas saves roughly $6,600 in income tax but loses roughly $7,000 in property tax, close to a wash on the tax layer alone. For a renter (no property tax), Texas saves the full $6,600 income tax with little property tax offset. Net: Texas significantly better for renters at this income level.

Combined with the corrected 8% RPP edge for Austin, roughly $12,000 a year in cost-of-living terms on a $150,000 salary, the overall picture shifts further toward Austin than the tax layer alone suggests: Austin is clearly better for renters, and even for $500,000-home buyers the cost-of-living edge outweighs the roughly-wash tax picture. Only at higher home price points, where Texas's property tax rate compounds on a larger base, does the gap narrow meaningfully.

The original 3%-RPP-edge framing understated how much the cost-of-living layer matters here. The tax-included calculation still reveals a nuanced picture, rent versus ownership and home price point both matter, but the corrected RPP gap means the cost-of-living layer, not the tax layer, is the larger factor for most household types in this example.

The Sales Tax Trap in No-Income-Tax States

States that lack income tax fund services through other channels. The "no income tax" headline is real, but it is rarely the full story:

• Texas. No income tax, but among the highest property taxes in the country.
• Washington. No income tax, but combined sales tax of 9-10% in major metros and a high cost of living overall.
• Tennessee. No income tax (effective 2021), but combined sales tax around 9.5% - among the highest in the country.
• Florida. No income tax, but high property insurance costs (separate from property tax) due to hurricane exposure.
• South Dakota and Wyoming. No income tax and modest other taxes, partly because populations are small and state services are limited.

For a high-income earner, the income tax savings in Texas or Florida usually outweigh the offsetting property and sales taxes, those states genuinely are tax-favorable for high earners. For lower- and middle-income households, the picture is murkier; sales tax and property tax disproportionately affect them, and the income tax savings are smaller.

The Property-Tax Wedge for Long-Term Owners

Some states cap annual property tax growth or freeze assessed values for long-term owners. California's Proposition 13 (1978) caps annual assessment growth at 2% per year for owner-occupied homes, regardless of market value appreciation. Florida's Save Our Homes (constitutional amendment) caps at 3% per year. Many other states have less aggressive but similar provisions.

These caps create a wedge between long-term owners (who benefit) and new buyers (who pay tax on the current market value). A California neighbor who bought in 1995 may pay one-fifth the property tax of a neighbor who bought the same house style in 2024. For a relocation decision, you are the new buyer and pay the current rate.

Several states offer senior property tax freezes or homestead exemptions that reduce property tax for owner-occupants over a certain age. For retiree relocation, these exemptions can materially affect long-term cost.

Working With Tax Professionals

For any high-stakes decision involving relocation or career changes across state lines, consider engaging a CPA or tax attorney familiar with both the origin and destination state. State tax planning involves residency rules (the day you become a tax resident of the new state), apportionment rules (for income earned in multiple states), and special provisions (treatment of stock options, restricted stock units, deferred compensation) that vary significantly by jurisdiction.

Common pitfalls that trip up self-directed relocators:

• Stock option exercises near a relocation date. Some states tax stock option income based on where it was earned (vesting state), not where you live when you exercise. Timing matters.
• Deferred compensation. Pensions and deferred comp from a high-tax state can sometimes be taxed by that state even after you move to a no-tax state, depending on the type of plan and federal law.
• Residency proof. States like New York, California, and New Jersey aggressively audit former residents who claim they moved to no-tax states. Demonstrating clear residency in the new state, driver's license, voter registration, doctor relationships, time spent, matters.
• Real estate gains. Some states treat real estate sale gains differently from ordinary capital gains. Selling appreciated property near a relocation is worth modeling carefully.

For multi-million-dollar relocation decisions, professional advice usually pays for itself many times over. For routine $100,000-salary relocations, careful self-research using state department of revenue publications is generally sufficient.

Putting It Together

For any relocation decision, the workflow is:

1. Use BEA RPP to estimate price-level differences between the candidate metros.
2. Use BLS data to estimate occupational wage differences.
3. Layer in state income tax, local income tax, property tax (for homeowners), and sales tax differences.
4. Compute real disposable income for each metro after all of the above.
5. Make the decision on real disposable income, weighted against non-financial factors (family, climate, career trajectory, etc.).

BEA RPP is a foundational input but it is not the whole calculation. The complete picture requires layering tax analysis on top. Once you do, the right relocation decision often becomes much clearer than a one-line RPP comparison would suggest.

Use the PlainCost cost of living calculator for the RPP layer; pair with state department of revenue data and any CPA consultation needed for the tax layer. The metro and state pages on this site display current RPP for any covered area.

Frequently asked questions

Do BEA RPPs include taxes?

RPPs include sales tax effects on goods prices but do not directly capture state income tax, property tax, or other tax burdens. Two metros with the same RPP can have effective tax rates that differ by 5-10 percentage points, which materially affects real disposable income. Tax analysis must be layered on top of RPP comparisons.

Which states have no income tax?

As of 2026, nine states have no broad personal income tax: Alaska, Florida, Nevada, New Hampshire (taxes some interest and dividends only), South Dakota, Tennessee, Texas, Washington, and Wyoming. These states fund services through sales, property, and other taxes, so the absence of income tax does not always mean lower overall tax burden.

Are property taxes included in RPP?

Property taxes are not directly captured in RPP. The rents RPP includes housing costs but those reflect what renters pay in gross rent (rent + utilities), not what homeowners pay in property tax. For a homeowner relocation comparison, look up effective property tax rates separately for both metros.

How much does state income tax change my real take-home pay?

For a household earning $100,000, moving from a no-income-tax state to one with a 6% effective state rate costs about $6,000 per year in additional state tax. That gap exceeds the cost-of-living savings between many metros and can flip a favorable RPP comparison into an unfavorable one once taxes are included.

Should I move to a low-tax state to save money?

It depends on the full picture. Some no-income-tax states have above-average property tax (Texas), above-average sales tax (Tennessee, Washington), or higher overall cost of living (Florida, Washington) that offsets the income tax savings. Total tax burden plus cost of living is the relevant calculation, not income tax in isolation.

Calculator Cost-of-living layer States State-level RPP Real wages Cost vs income Step-by-step Comparison framework