As a Canadian resident and business owner who has spent time in the United States, George Scorsis has earned a unique perspective as an entrepreneur. He notes that information about the differences between the Canadian and American tax systems is wrought with misinformation. At the end of the day, Canadians do typically pay slightly more, but not always. Just like most things, there really is not a clear cut answer in light of complexities. However, in this compare and contrast game, there are some states in the U.S. that have a clear advantage over other states and over Canadian provinces.
Q: You’ve been an entrepreneur for decades and have researched the differences between the countries and the complexities of business. What are some clear differences? What states have a leg up for entrepreneurs and why?
George Scorsis: Well, when you’re comparing tax systems, there is one major difference: the United States has seven states in which residents pay zero state income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire and Tennessee don’t tax earned wages.
How many Canadian provinces offer zero income tax? Zero.
Q: How are those states making up for that lost revenue? How can the lack of income tax be a benefit to start-ups?
George Scorsis: Typically, states make up for that money from sin taxes, or tax on the sale of tobacco, alcohol, etc.
When you are just getting started and investing everything you have in your business – your time, your money, and sometimes a bit of your sanity, then every incentive, every dollar that you can put back into making your dream business happen – it all counts.
Further, it not only counts in the actual balance sheet, but also in your overall mindset. Think about it, in California, people are spending nearly 10% on income tax. I mean, CARP is one of the organizations that comes up with ideas for how people can retire comfortably, and Canadians do not have the option to move to a location with zero income tax as Americans do. It seems like people in the U.S. have some fantastic opportunities to save more for retirement – simply by moving. It is a credible stance. So, just as retirees are saving in these states, so are business owners, in many cases.
Q: But there has to be a cost to someone, somewhere, right? The law of economics–– TANSTAFL (There Ain’t No Such Thing As A Free Lunch, i.e. somebody always pays)?
George Scorsis: That’s true. Just from a layman’s perspective, it appears that sometimes the sin taxes don’t bridge the gap created by lack of income tax. At that point you need to look at a number of things before moving to a state. What do you really value and is the lack of income tax going to impact that?
Sometimes it is the education system that suffers, other times it’s different forms of infrastructure. If you have school aged children or are driving on the roads a lot, those are obvious considerations to be made. Do your due diligence before moving.
Q: What would be your top picks for yourself and your family and why?
George Scorsis: Strangely, they would be the states I just mentioned – on opposite sides of the continent and on opposite sides of the spectrum: Alaska and Florida. Interestingly, Alaska pays residents a kind of stipend to live there. I think it was nearly $1,000 a couple of years ago, though I haven’t looked at recent numbers. Still, with that and despite the lack of income tax, the cost of living is substantial. Housing is high and food costs, due to the remoteness of Alaska, come into play for most people. Still, there is something truly beautiful about America’s final frontier. There is a toughness – and still an approachability – to the people of Alaska.
As for Florida, housing is again costly, but other costs of living seem lower. That is beside the point, though. The sunrises and sunsets in Florida are stunning – it is like a show that nature provides and that I always want to share with my family.
The beauty of business is that you can really make it happen from anywhere, but the world is meant to be experienced and we are meant to find the places where we can thrive – in entrepreneurship and in life, in general.