California’s tax gulf with Arizona is hitting middle-class workers – and the numbers help explain why hundreds of thousands are heading east.
Income taxes, payroll deductions, sales taxes, fuel costs and utility bills are all higher in California – and for many families, it’s enough to justify crossing state lines to Arizona.
A single filer earning $80,000-a-year will typically pay more in state income taxes in California than in Arizona, underscoring what critics describe as a widening financial divide between the two states.
After California’s standard deduction, taxable income on an $80,000 salary is roughly $74,000. Under the state’s progressive tax brackets, that means state income taxes in the mid-$3,000 range.
Arizona, by contrast, imposes a flat 2.5% income tax. After its larger standard deduction, taxable income on $80,000 drops to roughly $64,000, and resulting in a state tax bill of about $1,600.
That leaves a gap of roughly $1,700 to $1,800 per year based on income taxes alone.
California also automatically withholds 1.3% from paychecks for State Disability Insurance, with no wage cap. On an $80,000 income, that amounts to another $1,040 annually — a levy Arizona workers largely avoid.
Income tax remains the single biggest driver of the discrepancy, though the squeeze extends beyond April 15.
California’s statewide sales tax stands at 7.25% — the highest base rate in the nation — and local add-ons push total rates above 10% in many cities, including parts of Los Angeles County.
Arizona’s statewide rate is 5.6%, though municipalities add their own layers.
And the burden could soon grow heavier. Los Angeles County officials have proposed a half-cent sales tax increase that would raise the cost of everyday purchases, from groceries to restaurant meals.
Meanwhile, gas prices also another contrast. California’s state gasoline taxes and fees are about 70 cents per gallon, compared with about 18 cents in Arizona.
A commuter driving 15,000 miles a year could pay roughly $300 more annually in state fuel taxes alone.
Utility bills widen the gap further.
California residential electricity rates average roughly 28 to 32 cents per kilowatt-hour — about double Arizona’s typical 13 to 15 cents.
For a household using around 800 kilowatt-hours per month, that can translate into $1,300 to $1,500 more per year in electricity costs.
Critics have pointed to the state’s cap-and-trade program and regulatory mandates as key drivers of higher energy prices.
Other excise taxes add incremental pressure. California’s cigarette tax stands at $2.87 per pack, compared with $2.00 in Arizona. Alcohol taxes and vehicle-related fees also tend to run higher in the Golden State.
Individually, some of these levies amount to hundreds of dollars. Collectively, they can total several thousand dollars more per year for an $80,000 earner.
The migration data reflect the strain. More than 630,000 California residents relocated to Arizona between 2014 and 2024, according to research from StorageCafe.
The analysis found that home prices in California are more than double those in Arizona, with the heaviest outflow coming from Southern Californian counties such as Los Angeles, San Diego and Orange.
Chris Dunham, a Phoenix-based real estate agent with 27 years’ experience, said the pattern among his clients is consistent.
“Every client I’ve ever had come from California is cash heavy,” Dunham told the California Post. Many bought homes in California decades ago for “two, three hundred thousand dollars,” only to see them soar to a $1 million or more.
“They’ll come here and spend half of that on a house and then take the rest of the year off,” he said. “And you know, not have to work because they’ve been able to capture so much equity from there.”
Dunham said the sticker shock often works in reverse once buyers see Arizona prices.
“I’ve sold houses here to Californians. They’re like, ‘Oh my gosh, this house in California would be two million dollars,’ and was maybe six hundred thousand here,” he said. Even million-dollar homes in Phoenix leave former Californians “baffled about the amount of size of a home they can get, the land they can get.”
“You couldn’t touch that in California,” he added, pointing to properties in Queen Creek where buyers can get an acre of land and a 3,000-square-foot home for just over $1 million.
Beyond housing, he pointed to everyday costs.
“Just look at gas alone,” Dunham said. “Gas is eight to ten dollars a gallon” in parts of California, compared with “between two and three dollars” in Arizona, sometimes “three fifty, four bucks.”
“And traffic wise it’s significantly less,” he added, noting he can get from the center of Phoenix to nearly any point in the metro area “within forty, forty-five minutes during rush hour,” compared with multi-hour freeway commutes he hears about from clients leaving California.