Rita just finished completing her educational requirements to become a dental hygienist. She has been offered jobs in two
different cities and is trying to determine which one she should accept. Both employers offer similar benefits and working
conditions, but the jobs are in two different states. Rita will move to the state in which she accepts a position.
The first position is in Pennsylvania, Rita would earn $50,000 a year, and she could purchase a starter duplex in the older
part of the city for about $75,000. Property taxes equal about 3.5% of assessed value. Assessed value is normally 85% of
market value. The state sales tax rate is 6% but does not apply to clothing or food among other items. State income taxes
average 3%.
The other position is in Maryland. Rita would earn $65,000 a year, but a starter duplex would cost her $135,000. In that
area, property taxes average about 4% of assessed value, and values are assessed at 60% of market value. The state
sales tax is generally considered to be about 1% higher than in Pennsylvania because it applies to clothing as well as
other purchases. Additionally, state income taxes average 1.5% higher in Maryland than in Pennsylvania.
Questions
1) What would be the difference in cost of living between the two locations based only on the differences in sales tax,
income tax, and property tax? Assume $24,000 of taxable purchases for this exercise.
Tax
Pennsylvania
Maryland
Difference
Property
Sales
State Income