Published October 23, 2012
| 24/7 Wall St.
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.
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.
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.
> Taxes paid by residents as pct. of income: 10.2%
> Total state and local taxes collected: $52.71 billion (6th highest)
> Pct. of total taxes paid by residents: 76.8% (10th highest)
> Pct. of total taxes paid by non-residents: 23.2% (10th lowest)
Pennsylvania collected more than $52 billion in state and local taxes in the 2010 fiscal year. Of this amount, 76.8% came from residents. Pennsylvania residents earned an average of $40,861 per capita in 2010, slightly below the $41,146 in the U.S. In 2010, residents paid 10.2% of their income to Pennsylvania and other states. Total tax payments to Pennsylvania from in-state came to $3,118 per capita. Pennsylvania’s sales tax of 6% is tied for 16th highest in the country. The state’s income taxes are low, at a flat 3.07% across all income brackets. However, local taxes can come to an additional 1% or more, with residents in cities like Philadelphia paying more than 1.5%.
> Taxes paid by residents as pct. of income: 10.3%
> Total state and local taxes collected: $5.84 billion(10th lowest)
> Pct. of total taxes paid by residents: 63.6% (14th lowest)
> Pct. of total taxes paid by non-residents: 36.4% (14th highest)
Maine’s residents had a state and local tax burden of 10.3% in 2010, up from 10.1% in 2009. The tax burden may continue to get worse for some residents. The Maine Center for Economic Policy believes that lower-income residents will soon see higher property tax bills, since the legislature cut payments to municipalities at the same time as it cut income, pension and estate taxes. The Center argues this will primarily benefit the wealthy. In the fiscal year 2010, Maine collected $1,655 per capita in property taxes, which comes to 4.53% of the average resident’s income. This is the sixth-highest rate in the country.
> Taxes paid by residents as pct. of income: 10.4%
> Total state and local taxes collected: $33.48 billion (10th highest)
> Pct. of total taxes paid by residents: 76.5% (12th highest)
> Pct. of total taxes paid by non-residents: 23.5% (12th lowest)
The 10.4% tax burden on Massachusetts residents was up from 10% in 2009. Income per capita fell from $53,029 in 2009 to $51,991 in 2010. Individual income taxes are a major part of the State’s tax burden. Massachusetts collected $1,549 per capita in income taxes from the 2010 tax season, the third-highest amount in the country. Massachusetts’ per capita income was the third highest, behind Connecticut and New Jersey, and the total tax bill per capita of $5,422 was the fourth-highest. Property taxes collected of $1,845 per capita, were the eighth highest of all states.
> Taxes paid by residents as pct. of income: 10.8%
> Total state and local taxes collected: $24.36 billion (17th highest)
> Pct. of total taxes paid by residents: 76.7% (11th highest)
> Pct. of total taxes paid by non-residents: 23.3% (11th lowest)
Minnesota residents’ state and local tax burden was 10.8% of income in 2010, up from 10.3% the previous year and 10.0% back in 2005. The state received $4,727 in taxes from both residents and non-residents in 2010, the seventh-highest rate in the U.S. This was up from $4,651 in 2009. The state ranked in the top 10 in both high sales taxes and high individual income taxes. There were three different tax brackets, with the highest bracket of 7.85% on individual income over $77,730 ($137,430 for couples). This was higher than most top tax brackets in the country.
6. Rhode Island
> Taxes paid by residents as pct. of income: 10.9%
> Total state and local taxes collected: $4.81 billion (8th lowest)
> Pct. of total taxes paid by residents: 71.0% (24th highest)
> Pct. of total taxes paid by non-residents: 29.0% (24th lowest)
Rhode Island’s state and local tax burden was close to 11% in the 2010 tax season, as residents paid $4,627 per capita in taxes. More than $1,300 of this was paid by residents to other states where Rhode Islanders bought goods and conducted business–a higher per capita total than most states. Rhode Island’s top personal income tax bracket was 5.99% of income for those earning over $129,900. The state sales tax in Rhode Island was 7%, the second highest in the country, and its cigarette tax of $3.50 a pack was more than all but one other state.