Rita just finished completing her educational requirements to become a dental hy

Question

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 cam $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 cam $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. 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. (See page 707 as an example) Using your answers from Exercise I, what percentage of the difference in annual salaries does this additional cost represent?

Explanation / Answer

In Pennsylvania

sales tax is = 6% of 24000 = 1440

income tax = 3% of 50000 = 1500

property tax = 3.5% of 85% of 75000 = 2231.25

therefore total cost of living In Pennsylvania =1440 + 1500 + 2231.25 = $ 5171.25

In Maryland

sales tax is = 7% of 24000 = 1680

income tax = 4.5% of 65000 = 2925

property tax = 4% of 60% of 135000 = 3240

therefore total cost of living In Maryland = 1680+2925+3240 = $ 7845

difference between the cost of living between the two locations is = 7845 - 5171.25 = $ 2673.75

Maryland has a higher cost of living

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