Comparing Nevada vs. California taxes is essential if you’re considering moving to or from either state. Whether you’re retiring, starting a business, or making a job change, it’s crucial to understand how taxes in a new place will affect your business or bank account.
California is attractive to many. Its warm Mediterranean-like climate, stunning coastline, and exceptional diversity make the golden state shine. But, it’s also known for its high cost of living, with high taxes on almost everything.
Nevada, on the other hand, is known for being business-friendly. It has limited regulation, which probably isn’t surprising given its reputation. Nevada is the gambling and entertainment capital of the nation. And with that comes substantially lower taxes across the board.
But taxes apply differently depending on your situation, so it’s vital to understand each tax as it applies to you. California may have higher taxes on average, but moving there still makes sense for many. Conversely, despite lower taxes and fewer regulations, Nevada isn’t always the right choice.
Below we lay out the significant taxes in each state so you can compare them, oranges to oranges. So, if you’re deciding between the silver state and the golden one, read on. Your decision will be that much easier once you’re aware of the taxes in each one.
What Taxes Do You Pay in Nevada?
Compared to California, Nevada residents don’t pay much in the way of state taxes. Living in Nevada means you won’t have to pay state income tax, estate taxes, pension taxes, mailbox money taxes, or capital gains taxes.
However, living there isn’t tax-free. Nevada residents still pay:
- Sales tax
- Property tax
- Excise taxes for items such as gas, cigarettes, and alcohol
There are other taxes too, but those listed above are the most significant. We’ll talk about all of them below and then cover a few of the lesser-known Nevada taxes in the final section of this article.
What Taxes Do You Pay in California?
Living in the golden state comes at a cost. California requires residents to pay relatively high taxes for just about everything. In California, you can expect to pay:
- Income tax
- Sales tax
- Property tax
- Capital gains tax
- Excise tax for items such as alcohol, gas, and cigarettes
- Retirement income/pension tax
California also charges taxes in a few other areas. Business taxes, for example, aren’t cheap in California. We’ll cover the major taxes first below. Then we’ll talk about business taxes and other levies to be aware of in the last section of this article.
Income Tax in Nevada vs. California
Forty-two states levy individual income taxes, but Nevada’s not one of them. California, conversely, is notorious for having the highest income taxes in the nation.
California uses a graduated-rate income tax system. So, those with lower incomes pay relatively little, while those with higher incomes pay significantly more. The median income per capita in California is $36,955. If you made that in a year, you could expect to pay 6% in state income taxes.
If you were to make over a million in a year, though, California’s income tax rate increases significantly to 13.3%. That’s a much higher rate than any other place in the U.S.
Nevada, of course, is one of only seven states that doesn’t levy an income tax on its residents. According to the American Legislative Exchange Council, that’s one of the reasons Nevada continues to see population and job growth, while California may have plateaued in recent years.
Sales Tax in Nevada vs. California
Both California and Nevada levy sales tax and both of them are relatively high. In California, the state sales tax rate is 7.25%, which is the highest in the nation. On top of that, consumers face local sales taxes, which bring the average sales tax rates in California to 10.25%.
In Nevada, the state sales tax rate looks low, but looks can be deceiving. Technically, the state sales tax rate is 4.6%. However, there are local county relief taxes of 2.25% for every sale, bringing their minimum state sales tax rate to 6.85%.
Local sales tax rates in Nevada can add a significant amount to that figure. In many areas, such as Las Vegas, the sales tax rises to 8.38%. That’s still significantly lower than California’s 10.25% average, but it’s higher than most other states.
Property Tax In Nevada vs. California
When it comes to property tax, Nevada and California boast similar rates. In California, the effective property tax rate is .79%, and in Nevada, it’s .69%.
But there’s a catch. States levy property tax based on the value of your property. In California, the average home price is $668,300. In Nevada, it’s $358,949. That means Californians pay substantially more property tax than Nevadians.
That said, Californians do have Prop. 13 on their side. Prop 13 passed in 1978 in California to prevent homeowners from being subject to the ever-fluctuating real estate market. As a result, county assessors don’t use the real estate market’s current value of your home unless you just moved in.
Instead, assessors in California use the market value of your home on the date you purchased it plus 1%. The rate is subject to an annual increase of no more than 2%. So, Californians that have lived in the same home for an extended period often have a property tax rate that’s far lower than the current value of their house would suggest.
Capital Gains Tax in Nevada vs. California
Capital gains refer to the sale of an asset such as shares of stock, a parcel of land, or an entire business. How high a capital gains tax depends on how long you’ve held the asset.
When it comes to federal taxes, capital gains held for more than one year are considered a long-term asset. Sales of long-term assets are subject to a federal capital gains tax of 0%, 15%, or 20%, depending on the asset’s value.
Nevada doesn’t levy any additional capital gains taxes. So, if you sell your business or a large parcel of land in Nevada, you’re only subject to the federal tax rate.
California, however, does levy taxes on capital gains. There, you’ll pay the same amount as your income tax rate. So, if you’re in the highest tax bracket of 13.3%, you can expect to pay a capital gains tax of 33.3%.
The 33.3% tax on capital gains in California isn’t just the highest rate in the nation; it’s the highest rate in the world. And, it’s important to note that the current presidential administration has suggested increasing the federal capital gains tax rate for high-income Americans (those making over $1 million per year).
If that were to happen, California’s capital gains tax rate could sky-rocket for high-earners to nearly 40%. For those making less than $1 million per year, however, the rate wouldn’t be nearly as steep.
As mentioned earlier, many Californians fall in lower tax brackets, making the capital gains tax less intimidating for average-earners.
Excise Tax in Nevada vs. California
Excise taxes are taxes that states impose on certain goods, services, or activities. Depending on the tax, states may levy these on the manufacturer, retailer, or consumer. Common excise taxes are those placed on gasoline, cigarettes, and alcohol.
California’s gasoline tax is 51 cents per gallon. It’s been rising since the passage of SB1 in 2017, which proposed a significant increase in gasoline taxes to pay for needed road repairs.
At 51 cents per gallon, California has the highest gasoline excise tax in the nation. According to the American Petroleum Institute (API), additional taxes and fees in California add 13 cents to the 51 cent excise tax, bringing the whopping total to 63 cents per gallon in fees and taxes.
Altogether, that means Californians have some of the most expensive gas in the country. And, it’s higher for diesel fuel. According to the API, taxes, and fees add 83 cents per gallon to diesel in California.
Nevada has an excise tax on gasoline as well, but it’s much lower than California’s at only 23 cents per gallon. However, Nevada has several other taxes and fees that are added to the sale of gasoline. The API notes that the total amount of taxes and fees per gallon in Nevada is 51 cents.
Diesel in Nevada is much more affordable than in California as well. The excise tax for that is only 28 cents per gallon.
Both Nevada and California levy significant excise taxes on cigarettes. In Nevada, cigarettes are subject to a $1.80 excise tax per pack. They also levy a sales tax of 41 cents on average, which brings their total cigarette tax to $2.21 per pack.
That means in Nevada, the average price of a pack of cigarettes is $6.44. That’s pricier than much of the nation, but it’s nowhere near the California average.
California ranks 9th in the country for cigarette excise taxes, with only a handful of states charging higher rates. In California, cigarettes are subject to an excise tax of $2.87 per pack of twenty. That puts the average cost of a pack of cigarettes in California at $8.31.
Nevada and California levy similar excise taxes on alcoholic products. As with most states, California and Nevada levy alcohol taxes by product type. So, the tax is different for liquor than it is for beer or wine.
In California, the excise tax on liquor is $3.30 per gallon. In Nevada, it’s slightly higher at $3.60. When it comes to wine, California has a relatively low excise tax of only 20 cents per gallon. In Nevada, it’s 70 cents.
As for beer, Nevada’s excise tax is a meager 16 cents per gallon. California’s is 20 cents per gallon, just like its wine.
Taxes on Retirement Income and Pensions
Retirement means saying goodbye to a lot of things, but taxes aren’t one of them. Though, in Nevada, the taxes on retirement income and pensions are as low as they can be. The state doesn’t tax them, so residents need only worry about the federal taxes that apply.
In California, that’s not the case. Instead, California taxes retirement income and pensions at the receiver’s income level. For some, that could mean taxes as high as 13.3%.
However, more often than not, retirement income and pensions are significantly lower than what people make when working full time. Usually, that pushes retirees into lower tax brackets in California, making the tax slightly more affordable.
Other Notable Tax Differences
Both California and Nevada levy several taxes we didn’t cover above. Below, we’ll touch on a few important ones.
S-Corp, C-Corp, and LLC Taxes
Nevada is known for being business-friendly, thanks to low regulations and low business taxes. In fact, the state doesn’t levy taxes on C-corps, S-corps, or LLCs. So, many, especially smaller businesses, choose to launch in the silver state.
In California, that’s not the case. California taxes C-corps at 8.84% and S-corps at 1.5%. LLCs are subject to taxes based on their net income. At a minimum, they pay $1700 per year, and at a maximum, they end up paying around $12,000 per year.
California is still attractive to businesses thanks to its large population, temperate climate, and massive economy. But, its tax rate often makes people see it as less business-friendly.
Medical and Recreational Marijuana
Cannabis, or marijuana, isn’t legal federally. However, both California and Nevada have passed laws that allow for medical and recreational use. And both states levy taxes on the substance.
In Nevada, recreational marijuana is subject to a 10% excise tax plus standard sales tax. However, medical cannabis is only subject to sales tax.
California levies a 15% excise tax on recreational and medical marijuana. Recreational marijuana is also subject to state sales tax, while medical marijuana is not.
Manufacturers in California must also pay a cultivation tax for any marijuana that enters the commercial realm. The cultivation tax varies by weight and type of cannabis. As an example, fresh cannabis has a cultivation tax of $1.35 per ounce.
All of this together means that the average cost for a recreational marijuana product in California is $30.90. In Nevada, it comes out to an average of $26.94.
Related: Top Areas to Live in Las Vegas
Gross Receipts Tax
Gross receipt taxes are applied to a company’s gross sales. And they don’t allow for deductions such as compensation or the cost of goods sold. Gross receipts taxes apply to business-to-business transactions as well as to consumer purchases, which leads to tax pyramiding. In other words, a gross receipts tax taxes each item more than once.
Gross receipts taxes are often cited as one of the most damaging taxes for businesses, and only seven states levy them today. Nevada imposes a gross receipts tax of .05%-.33%.
Conversely, California does not have a state gross receipts tax. However, certain localities within California do have gross receipt taxes that they levy in different ways.
Los Angeles, for example, levies a business license tax based on the business’s gross receipts. And San Francisco imposes a gross receipt tax on businesses of substantial size (those with more than $1,170,000 in gross receipts or more than $320,000 in payroll expenses).
Few consumers think about how much tax adds to their cell phone bill, but maybe they should. Wireless taxes exist in all fifty states in addition to federal wireless taxes of 9.83%. Neither California nor Nevada charge exorbitant amounts in wireless taxes compared to some other states. All the same, it’s essential to be aware of what each state adds to your monthly bill.
California applies a 13.39% tax on residents’ wireless bills. That combined with the federal tax puts total wireless taxes in California at 23.22%. This is far lower than other states, like Illinois which charges 30.32%!
Nevada has one of the lowest wireless taxes in the nation. They only charge 3.46%, making the total wireless tax in Nevada 13.29%. That’s slightly lower than California’s state tax alone! Clearly, Nevada is the more affordable state in which to own a cell phone.
Understanding how taxes will affect your bank account or business is vital before making a move across state lines. Comparing Nevada vs. California taxes can be tricky, though. Sometimes it feels a bit like comparing apples to oranges when you’re looking at state tax laws.
California, with its sunny shores, redwood forests, and fertile farmland, levies substantially higher taxes in almost all areas. Comparatively, Nevada, with its arid landscape and picturesque mountain peaks, seems to charge nearly nothing at all.
However, the way taxes will apply to you, or your business will be unique, and it’s important to remember that few residents sit in the top California tax brackets, which are notoriously steep.
So, it’s vital to compare Nevada vs. California taxes on a tax-by-tax and case-by-case basis. That’s the only way to determine which state is best for living or doing business.