During the 2011 tax season, Americans paid 9.8% of their income in state and local taxes -- on top of taxes collected by the federal government. This number, according to a report by the Tax Foundation, was up from 9.3% in 2000, but was basically unchanged from 2009.
Generally, tax burdens were highest on the East Coast, while residents of Midwestern and Southern states often faced lower tax burdens. Residents of New York and New Jersey paid more than 12% of their income in state and local taxes, the most in the nation. Wyoming residents, on the other hand, paid less than 7%. Based on research conducted by the Tax Foundation, these are the states where taxes were the highest and lowest as a percentage of total income.
According to Lyman Stone, economist at the Tax Foundation, the report demonstrates the enormous differences in state tax policies. While some states did away with certain taxes altogether, others adopted a wider range. States with low tax burdens often eliminated a major type of tax. Most of the states with the lowest tax burdens either did not have an individual income tax or only taxed income from dividends and interest. And two low-tax states, Alaska and New Hampshire, did not have sales taxes at all.
On the other hand, states that had high tax burdens typically utilized a wide range of taxes. “High tax states tend to be those that not only have high [tax] rates but tax a lot of different things in a lot of different ways,” Stone said.
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New York, the state with the highest tax burden in America, was one of just two states that taxed wealthy individuals the top tax rate on all the income they earned, not just on earnings above the tax bracket’s threshold. California not only had the highest top income tax rate, but it also added a 1% uniform local sales tax to all transactions -- in addition to its state sales tax.
Many of the states with low taxes benefit from having considerable taxable resources aside from the incomes, property, and spending of their residents. In the case of Nevada, gaming was a major source of revenue. For states such as Wyoming and Alaska, severance taxes -- charged on businesses producing oil and natural gas -- have historically been a large source of revenue.
These revenues have kept tax burdens low in these states. However, Stone noted this did not necessarily mean the states were employing good policy. While taxes on companies involved in oil and gas extraction or gambling may allow a state to collect revenue from non-residents, at some point, he added, “someone bears that tax.”
Generally, states with wealthier residents tended to collect more in taxes. Seven of the 10 states with the highest tax burdens had a per capita income greater than the national average of $42,473. The three states with the highest tax burdens -- New York, Connecticut and New Jersey -- were all in the top five states nationwide for per capita income.
To identify the states with the highest and lowest tax burdens, 24/7 Wall St. reviewed state and local tax burden as a share of state residents’ income, as provided by the Tax Foundation. This includes all taxes paid by residents to the state or to various localities, such as their city and school districts. Figures are current as of fiscal year 2011, except where otherwise noted. In addition to tax data from the Tax Foundation, 24/7 Wall St. also reviewed figures from the U.S. Census Bureau and the Bureau of Economic Analysis (BEA) for 2012.
These are the states with the highest and lowest taxes.
States With The Highest Taxes
> Taxes paid by residents as pct. of income: 10.3%
> Total state taxes collected: $32.9 billion (6th highest)
> Tax burden per capita: $4,374 (12th largest)
> Income per capita: $42,268 (20th highest)
Pennsylvania, which has a long-term plan to raise taxes to repair its crumbling transportation infrastructure, levies a tax of 41.8 cents per gallon of gasoline, the fifth highest rate in the nation. The state’s Department of Transportation is planning to repair some 4,700 deficient bridges. The project, which is expected to cost roughly $4 billion, is partly funded by the state’s gas tax. In addition, residents paid an effective property tax rate that was among the highest in the country in 2012. That year, in an effort to lower property taxes, the state’s House of Representatives considered passing a bill that would eliminate property taxes in favor of higher sales and income taxes. Proposals to overhaul the state’s property tax system are still being debated.
> Taxes paid by residents as pct. of income: 10.5%
> Total state taxes collected: $2.8 billion (5th lowest)
> Tax burden per capita: $4,351 (14th largest)
> Income per capita: $41,634 (21st highest)
Vermont collected, on average, nearly $2,200 in property taxes per resident in 2011, more than all but four other states. This was partly due to the state’s effective property tax rate -- one of the highest in the nation -- as well as the relatively high property values in Vermont. The median home value in the state was $216,900 in 2012, considerably higher than the national median of $171,900. Home values increased by 5.6% from 2007 to 2012, compared with a nationwide decline of more than 11% over that period. One other factor likely contributing to the high tax burden facing residents was the state’s income tax. Residents earning over $405,100 per year were taxed at a rate of 8.95%, one of the highest top income tax rates in the U.S.
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8. Rhode Island
> Taxes paid by residents as pct. of income: 10.5%
> Total state taxes collected: $2.8 billion (6th lowest)
> Tax burden per capita: $4,676 (8th largest)
> Income per capita: $44,367 (16th highest)
Rhode Island was one of the higher ranked states for both per capita income and home value. Per capita income in Rhode Island was over $44,000, above the U.S. average of $42,473. Residents also paid an effective property tax rate of 1.49% on average in 2012, which was one of the highest in the U.S. In addition, Rhode Island residents also pay a great deal in taxes to other states. More than 3% of their income goes in taxes to other states, such as neighboring Massachusetts and Connecticut, more than all but a handful of states. Additionally, the state’s budget deficit is projected to nearly triple to $410 million by 2018. To address its debt and budget problems, the state may have to either cut services or further raise taxes.
> Taxes paid by residents as pct. of income: 10.6%
> Total state taxes collected: $17.0 billion (15th highest)
> Tax burden per capita: $5,598 (4th largest)
> Income per capita: $52,805 (4th highest)
Maryland residents were among the nation’s wealthiest in 2011 -- average income in the state was $52,805 that year, the fourth highest in the U.S. While individuals at the highest income bracket in the state were taxed 5.75% -- lower than half of all other states -- state and local income tax collections were third highest nationally, at $1,832 per capita in 2011. The state had a below-average effective property tax rate, but high home values drove up payments. In 2011, the property tax burden in Maryland was $1,449 per person, among the nation's highest.
> Taxes paid by residents as pct. of income: 10.7%
> Total state taxes collected: $20.6 billion (12th highest)
> Tax burden per capita: $4,858 (7th largest)
> Income per capita: $45,552 (14th highest)
Minnesota had the seventh-highest sales tax rate of any state in the country. As a way to lure tourists to the Mall of America, one of the largest shopping malls in the U.S., the state does not tax clothing or shoe purchases. In addition to a high sales tax, state residents pay a 28.5 cent excise tax per gallon of gasoline, the seventh-highest rate in the country. Relief from the high gas tax is not likely to come anytime soon, as the state’s Department of Transportation has been pushing for a higher fuel tax in order to increase funding for highway and bridge projects. As of 2011, Minnesota residents already paid 8.1% of their income in taxes within their home state, one of the highest figures in the nation.
> Taxes paid by residents as pct. of income: 11.0%
> Total state taxes collected: $16.0 billion (17th highest)
> Tax burden per capita: $4,477 (10th largest)
> Income per capita: $40,741 (25th highest)
Wisconsin’s income tax was the state's largest source of tax revenue, accounting for more than 42% of the state’s total tax revenue. Governor Scott Walker has recently suggested overhauling the income tax system, but such reforms would not go into effect until 2015. Gas is currently taxed at nearly 31 cents a gallon in Wisconsin, among the highest rates nationwide. The high effective property tax rate in the state may also have contributed to the overall high tax burden in Wisconsin. Property values were taxed at 1.76% in 2012, more than all but three other states. The combination of such taxes meant residents faced the fifth-highest tax burden in the U.S. and also paid $3,387 -- or 8.3% of their incomes -- in Wisconsin state and local taxes.
> Taxes paid by residents as pct. of income: 11.4%
> Total state taxes collected: $115.1 billion (the highest)
> Tax burden per capita: $5,136 (6th largest)
> Income per capita: $45,254 (15th highest)
California has the highest number of ultra-wealthy individuals -- people with a net worth of at least $30 million -- in the country. Individuals making $1 million or more per year paid 13.3% of their income in state income tax, the highest personal income tax rate in the nation. The state also levies the highest gasoline tax of any state, charging customers 52.5 cents per gallon. Even the state’s sales taxes were quite high, with the average combined state and local sales tax rate of 8.41%, the eighth highest in the nation. California also had one of the highest poverty rates in the nation that year and spent $69 billion on public welfare, by far the most of any state.
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> Taxes paid by residents as pct. of income: 11.9%
> Total state taxes collected: $15.4 billion (19th highest)
> Tax burden per capita: $7,150 (the largest)
> Income per capita: $60,287 (the highest)
Connecticut had among the steepest property taxes in the country. Residents paid $2,577 per person on average in 2011, the second most in the country. A typical house in Connecticut cost $267,800 in 2012, among the nation’s highest home prices. Property values are likely tied to the high incomes among Connecticut’s wealthy residents. The average income in the state was more than $60,000 in 2011, the highest in the country. Also due to their high incomes, Connecticut residents paid more in state and local taxes -- $7,150 per person -- than people in any other state. Of this, they paid an average of $4,885 to Connecticut governments. Residents also paid $2,264 per person in taxes to other states, such as neighboring New York, the most in the nation. Residents also had to pay at the pump. State taxes on gas totaled nearly 50 cents a gallon this year, more than in any other state, except California and New York.
2. New Jersey
> Taxes paid by residents as pct. of income: 12.3%
> Total state taxes collected: $27.5 billion (7th highest)
> Tax burden per capita: $6,675 (2nd largest)
> Income per capita: $54,422 (2nd highest)
New Jersey had the highest effective property tax rate in the country, as well as the second-highest state sales tax. One of the factors that may have contributed to the higher taxes was the state’s considerable debt burden of $7,328 per capita, the fifth highest in the U.S. Families living in the state, however, may benefit from the high property taxes as they are often used to fund public school systems. Indeed, the American Legislative Exchange Council ranked New Jersey third in the nation for the quality of its public education in 2012. In addition to the state’s high property and income taxes, New Jersey residents paid an average of $2,000 per person in taxes to other states, such as neighboring New York and Pennsylvania.
1. New York
> Taxes paid by residents as pct. of income: 12.6%
> Total state taxes collected: $71.5 billion (2nd highest)
> Tax burden per capita: $6,622 (3rd largest)
> Income per capita: $52,417 (5th highest)
New York residents faced the nation's highest state and local tax burden in fiscal 2011. Overall, 12.6% of residents’ income, or $6,622 per person, went to either state or local taxes that year, with the bulk of payments going to the state of New York or its local governments. The state collected about $71.5 billion in taxes in fiscal 2012. More than half of that came from individual income taxes, which contributed $38.8 billion to the state's coffers. Helping to boost these collections, the state charged residents an individual income tax rate of 6.85% if they earned more than $205,850 a year, and a rate of 8.82% if they earned more than $1,029,250 a year. New York is one of just two states that has a “tax benefit recapture” provision, which requires residents to pay the tax rate from their highest bracket on all their income, rather than on income earned above the bracket's threshold.
States With The Lowest Taxes
> Taxes paid by residents as pct. of income: 8.3%
> Total state taxes collected: $9.0 billion (25th highest)
> Tax burden per capita: $2,886 (5th smallest)
> Income per capita: $34,763 (7th lowest)
Unlike the majority of states with the lowest tax burdens, Alabama levies a heavy excise tax on spirits, collecting more than $18 per gallon in 2014. On the other hand, the state currently taxes cigarettes at just 43 cents per pack, less than half of what tobacco is taxed on average by states across the nation. Alabama’s low state and local tax burden was due primarily to an exceptionally low effective property tax rate, which was just 0.41% of a home value in 2012. An Alabama resident paid just $540, on average, in property taxes in 2011, the lowest amount in the nation. The state’s wealthiest residents currently pay a 5% individual income tax, among the lower rates nationwide. However, the average combined state and local sales tax rate is among the nation’s highest, at 8.51%. Because the poor pay a large share of taxes in the state, Alabama's tax system has been considered to be among the nation’s most regressive.
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9. South Carolina
> Taxes paid by residents as pct. of income: 8.3%
> Total state taxes collected: $8.0 billion (21st lowest)
> Tax burden per capita: $2,784 (3rd smallest)
> Income per capita: $33,603 (5th lowest)
South Carolina residents paid the seventh-lowest effective property tax rate in 2012, and currently pay the third-lowest gasoline tax in the country. South Carolina’s tax burden has declined slightly in recent years, from 8.7% in 2009 to 8.3% in 2011. However, unlike other low tax states, South Carolina still levies a state income tax, and all residents earning over $14,400 must pay the state’s top tax rate of 7%. Still, residents paid an average of just $2,784 per capita in state and local taxes, of which just $1,868 was paid to the state and other localities within their home state. These were both among the lowest tax payments, in dollar terms, in the nation.
> Taxes paid by residents as pct. of income: 8.1%
> Total state taxes collected: $6.8 billion (16th lowest)
> Tax burden per capita: $3,221 (15th smallest)
> Income per capita: $39,947 (23rd lowest)
Much of Nevada’s tax revenue comes from tourists, and the state’s gaming industry remains a major employer. While the state’s sales and gasoline taxes are quite high, the state is also one of the few to not charge a personal income tax on its residents -- rich or poor. As a result of its tax structure, state residents paid less than 5% of their income in taxes to Nevada and its localities, the fifth-smallest outlay in the country. Nevada also levies comparably low tax rates on spirits and tobacco -- drinking alcohol and smoking are activities often associated with gambling. The state’s excise tax on cigarettes is only 80 cents per pack, 17th lowest in the country, and the tax on spirits is $3.60 per gallon, 13th lowest in the country.
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7. New Hampshire
> Taxes paid by residents as pct. of income: 8.0%
> Total state taxes collected: $2.2 billion (2nd lowest)
> Tax burden per capita: $3,769 (23rd largest)
> Income per capita: $47,349 (9th highest)
New Hampshire is one of only a few states with no sales tax, which could help explain the overall low tax burden. The state makes up for lost revenue with a relatively high property tax. New Hampshire collected an average of $2,518 per resident in property taxes, more than all but two other states in 2011. Compared with other states, however, New Hampshire still collects among the least taxes. The state collected just $2.2 billion in taxes in fiscal year 2012, less than any other state except South Dakota. Because a good portion of property taxes are collected by local governments, the state of New Hampshire took in only $1,674 in taxes per capita that year, less than any other state.
> Taxes paid by residents as pct. of income: 7.6%
> Total state taxes collected: $12.0 billion (21st highest)
> Tax burden per capita: $2,777 (2nd smallest)
> Income per capita: $36,525 (14th lowest)
Tennessee residents paid just $2,777 per person in state and local taxes in 2011, the second-lowest amount in the nation that year. One reason for the state’s low tax burden was the
lack of individual state income tax on earnings. Instead, residents paid a 6% tax on dividends and interest payments. Fairly low property taxes may have also contributed to the limited tax burden in Tennessee. Residents paid just $800 per capita in property taxes in 2011, and the effective property tax rate in 2012 was just 0.74%, both at the lower end of all states. However, Tennessee's total sales tax of more than 9% -- when combining the state and average local sales tax rates -- is the highest in the nation.
> Taxes paid by residents as pct. of income: 7.6%
> Total state taxes collected: $9.0 billion (25th lowest)
> Tax burden per capita: $2,872 (4th smallest)
> Income per capita: $37,889 (20th lowest)
The average local sales tax rate in Louisiana is currently 4.89%, the highest in the country. However, localities offset this by levying low property taxes. The state's effective property tax rate of just 0.43% was the third lowest in the country in 2012. State residents also enjoy the third-lowest tax on cigarettes and the eighth-lowest tax on spirits. Louisiana has a large natural resources mining sector. The sector contributed 9.8% to the state’s GDP in 2012, making it Louisiana’s biggest industry. Projects, such as the $6 billion Cheniere Sabine Pass Liquefaction terminal expansion in Cameron Parish, are expected to create thousands of jobs and strengthen the state’s economy. A vibrant energy sector likely helped many residents save on their tax bills by charging companies a severance tax for extracting oil and gas.
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> Taxes paid by residents as pct. of income: 7.5%
> Total state taxes collected: $48.6 billion (3rd highest)
> Tax burden per capita: 3,088 (8th smallest)
> Income per capita: $41,269 (23rd highest)
Texas is one of a handful of states levying no income tax. While the state collects a gross receipts tax -- which is a tax on business transactions -- it does not collect any corporate income tax. Texas taxes gasoline at just 20 cents a gallon, among the lowest gas tax rates. The state’s total sales tax rate of 8.15%, on the other hand, is above the average among the states. Also, unlike many other states with low overall tax burdens, the 2012 property tax rate of 1.72% in Texas was relatively high. Overall, state and local taxes made up only 7.5% of state residents' income in fiscal 2011, compared with the average rate among all states of nearly 10%.
3. South Dakota
> Taxes paid by residents as pct. of income: 7.1%
> Total state taxes collected: $1.5 billion (the lowest)
> Tax burden per capita: $3,052 (7th smallest)
> Income per capita: $43,212 (18th highest)
South Dakota collected just $1.5 billion in taxes in fiscal 2012, the least in the nation. The state avoids levying several major taxes. The state has no individual or corporate income tax, and its sales and property tax collections were relatively low. As a result, residents paid less in taxes to their home state or its localities, both in dollars and as a percentage of their incomes, than Americans in all but one other state. However, South Dakota residents paid more than 3% of their incomes on taxes in other states. Because of the state's lax tax code, it is common for wealthy out-of-state families to set up trust companies in South Dakota. According to Bloomberg, state legislators have relaxed regulations so these families do not even need to move to the state or invest there.
> Taxes paid by residents as pct. of income: 7.0%
> Total state taxes collected: $7.0 billion (18th lowest)
> Tax burden per capita: $3,319 (18th smallest)
> Income per capita: $47,354 (8th highest)
The state of Alaska actually collected more than $10,000 per person in taxes in 2012, the most in the nation. However, due to a combination of high incomes, low taxes on residents and high charges to corporations, Alaska had the second-lowest tax burden in the nation. As of 2012, Alaska collected 9.4% of its taxes from corporate income taxes, one of the highest percentages in the country. As a major energy producer, Alaska has also benefited from the severance tax it imposes on petroleum production, a tax that has helped to bolster its coffers. Residents, on the other hand, did not have to pay a state income tax. Overall, the per capita tax burden on individuals was just $3,319 per person in 2011, or just 7% of the residents’ total income.
> Taxes paid by residents as pct. of income: 6.9%
> Total state taxes collected: $2.6 billion (4th lowest)
> Tax burden per capita: $3,500 (22nd smallest)
> Income per capita: $50,805 (6th highest)
Wyoming overtook Alaska as the state with the lowest tax burden in 2011, following a drop in the average tax rate from 7.8% to 7.1% of per capita income. Wyoming collected just $2.6 billion in taxes in fiscal 2012, among the lowest nationwide. Despite the state's low revenue -- from taxes and other sources -- the state had just $1.3 billion in short- and long-term debt, the lowest in the U.S. in 2012. Like several other states with low tax burdens, Wyoming has no individual income tax. Excise taxes are also some of the nation’s lowest. While spirits, for example, cost an additional $13.50 per gallon in the U.S., on average, Wyoming is one of only a few states without any taxes on spirits. Wyoming introduced the nation’s first wind energy tax in 2010, at $1 per-megawatt-hour, although the state has yet to collect large revenues from this tax.
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