Big changes could be coming on the state tax front. Next year Republicans will control both the governorship and legislature in 20 states, up from 9 now. Already Sam Brownback, Republican governor-elect in Kansas (replacing a Democrat), is talking about using his party's big majorities to cut the state's income tax rate, which tops out at 6.45%. Other states' pols could follow--a sharp contrast with the last few years, when most rate changes were increases.

The table below shows the five highest state income tax rates for 2010. In 2011 Rhode Island's rate will drop to 5.99%. "You've got to have a tax burden that is competitive with at least your neighboring states','' says outgoing Republican governor Donald Carcieri, who pushed through the cut.

Feeling overtaxed? Look around. If you work in a multistate metropolis you could relocate across a border. If you're self-employed, starting a new business or contemplating retirement, you might make a longer distance move.

That's what David Eifrig, who writes the Retirement Millionaire newsletter, is planning. Eifrig, 51, lives in Baltimore, where he's subject to both a city income tax of 3.05% and Maryland's state tax (with a top 6.25% rate on millionaires). He's scouting condos in income-tax-free Florida and figures that 20 years of state tax savings resulting from a move could pay for a water-view, two-bedroom condo, given the Sunshine State's depressed real estate market (see story, p. 198).

Alaska, Nevada, South Dakota, Texas, Washington and Wyoming also have no income tax. New Hampshire and Tennessee tax only interest and dividends. But before you pack, look at the total picture. No-income-tax states may have high real estate and sales taxes. Plus, some other states offer big breaks for retirees. Georgia, with a 6% tax, exempts up to $70,000 of pensions and investment income for couples 62 or older. That will rise in 2012 to $130,000 for couples 65 and up.

Meanwhile, if you might move soon to a low-tax locale, consider delaying income. Forty-two states tax capital gains, and only a few of them have a second, lower rate for long-term gains--as the federal system does. The top federal rate on long-term gains (for now, and likely for the next few years) is only 15%. But Oregonians also pay up to 11% state tax on gains.

Jonathan Lander, an adviser at PNC Wealth Management in Lahaska, Pa., reports that one business-owner client saved $600,000 by moving his family from New Jersey (top rate: 8.97%) across the Delaware River to Pennsylvania (3.07%) before selling shares of his Pennsylvania-based company. Not surprisingly, high-tax states aren't happy to let go of such wealthy residents. A few have even tried to tax ex-residents' pensions. Congress blocked that grab with a 1996 law that also protects those with deferred compensation--as long as the deferred amount is received in periodic installments.

Another issue for movers: Roth conversions. In a conversion you take money out of a pretax individual retirement account, pay the federal and state income tax due and put the funds into a Roth IRA, where future earnings and withdrawals are tax-free. The benefit of a conversion depends in large part on whether you will pay a higher or lower combined federal/state tax rate in the future. Robert Keebler, a CPA in Green Bay, Wis., had one client in her 80s who planned to move from Florida to California to be near her kids and grandkids. So he advised her to convert a $3 million IRA before heading west--a $300,000 state-tax savings.

#### The Not-So-Fab Five

These states are hitting residents with the highest income tax rates this year.
state | 2010 highest tax rate | on income over (For a couple)
Hawaii | 11.00% | $400,000
Oregon | 11.00 | 500,000
california | 10.55 | 1,000,000
rhode island | 9.90* | 373,650
Iowa | 8.98 | 64,261
*Drops to 5.99% on Jan. 1, 2011. Source: Tax Foundation.