States with the Highest (and Lowest) Taxes

During the 2010 tax season, Americans paid 9.9% of their income on state and local taxes. This number, according to a report released today by The Tax Foundation, is up from 9.3% in 2000, but is basically unchanged from 2009. Per capita income in the U.S. fell from $42,539 in 2009 to $41,146 in 2010, while taxes fell slightly, from $4,160 in 2009 to $4,112 in 2010.

In some U.S. states, the burden on residents relative to their income rose substantially. In New York state, taxes paid per capita rose by more than $200, while income per capita fell by more than $1,100. According to the report, residents in New York paid 12.8% of their income on state and local taxes last year. In Alaska, residents paid just 7% of their income on non-federal taxes. Based on the Tax Foundation’s State and Local Tax Burden Rankings for 2010, 24/7 Wall St. identified the states with the largest and smallest tax burden on their residents.

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The most important factor in how much a state demands of its residents is its ability to bring in income from out-of-state. In 2010, 73.8% of tax revenue to state and local governments came from state residents. In some states, however, much more of total tax revenue came from non-residents. In three — Alaska, North Dakota and Wyoming — more than half of tax revenue came from out of state. In Alaska, which benefits from taxes on energy companies operating in the state, residents are responsible for just 24.5% of all tax income.

All 10 of the the states with the lowest tax burdens received at least 32% of tax revenue from people who didn’t live in the state. In six states, it was more than 43%. Included on this list are those with large oil infrastructure, like Wyoming, Louisiana, Texas and Alaska. Nevada is heavily reliant on tourism, rather than oil, and 44% of its tax revenue comes from out of state.

In an interview with 24/7 Wall St., Tax Foundation economist Scott Drenkard explained that many states also have lower tax burdens because they have smaller government. “They don’t collect that much in taxes” Drenkard said, “so they don’t have that much of a burden.” This includes states like New Hampshire and Texas, which collect substantially less than the national average per capita. Among the 10 states with the lowest tax burdens, five are in the bottom 10 for total tax collections relative to population size.

“On the flip side,” explained Drenkard, “those states in the top 10 are states where they’re not really capable of exporting their tax burden — they don’t have mineral resources, but they’re also high-tax states in general.” Of the 10 states with the highest tax burdens, seven were among the largest tax collectors relative to population size.

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While sales and excise taxes and corporate taxes have the potential to export a portion of a state’s tax burden to non-residents, property tax and income tax are more likely to largely fall on people living in the state. Six of the 10 states with the highest tax burdens are in the top 10 for property tax rates. Eight of the 10 states with the largest tax burdens are in the top 15 for income tax collections per capita. This includes New York, which has the highest tax burden on residents, as well as the highest income taxes per capita collected for the fiscal year 2010.

Based on the Tax Foundation’s annual State and Local Tax Burden report, 24/7 Wall St. identified the ten states where residents paid the most in state and local taxes relative to per capita income. We also reviewed per capita income and property, income, excise and sales taxes, which were all for the 2010 fiscal year, with the exception of excise tax rates, which are as of July 1, 2012. 24/7 Wall St. also reviewed cost-of-living data from the Missouri Economic Research and Information Institute for the second quarter of 2012.

The States with the Highest Tax Burden

1. New York

> Taxes paid by residents as pct. of income: 12.8%
> Total state and local taxes collected: $136.24 billion (2nd highest)
> Pct. of total taxes paid by residents: 73.3% (19th highest)
> Pct. of total taxes paid by non-residents: 26.7% (19th lowest)

New York’s tax rate of 12.8% of income was up from 12.1% in 2009, when it was second to New Jersey. Currently, the state has eight different tax levels, ranging from 4% for taxable income under $8,000 all the way up to 8.82% for income over $1 million. In addition to federal and state taxes, residents of New York City were required to pay a local income tax, commonly referred to as the city tax. Property taxes were very high in New York, too. The median property tax in Westchester County in 2008 was $8,404 annually, more than any other county in the U.S. New York also had the highest cigarette tax in the country at $4.35.

2. New Jersey

> Taxes paid by residents as pct. of income: 12.4%
> Total state and local taxes collected: $51.10 billion (7th highest)
> Pct. of total taxes paid by residents: 81.4% (3rd highest)
> Pct. of total taxes paid by non-residents: 18.6% (3rd lowest)

Since The Tax Foundation started ranking tax burdens in 1977, New Jersey has always been ranked in the top five states with the heaviest tax burdens. Property tax collections per capita of $2,671 were the highest in the nation. The percentage of New Jersey’s total taxes paid by residents of 81.4% was much higher than that of neighboring New York, at 73.3%. Only Connecticut residents paid more to other states on things like sales and excise taxes than the $1,836 New Jersey residents paid. In 2010, the state collected $1,176 per capita in personal income tax, the seventh most in the country.