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Thirteen States Help Their Citizens Maximize Their Tax Deductions

By: William Ahern

When filling out the federal form 1040, a taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payer may deduct either the amount he paid in state-local income taxes or state-local sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es, but not both. As a result, the 13 states that combine all their tax collections in one or the other tax are doing their citizens a great favor. And the lucky deducters are the residents of:

  • Oregon, Delaware, Hawaii and Montana where there’s no tax on retail sales but lots of deductible income taxes; and
  • Washington, Nevada, South Dakota, Texas, Florida, Tennessee and Wyoming where there’s no tax on wages but lots of deductible sales taxes
    • New Hampshire does without taxing wages or sales, concentrating its collections in deductible property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es. Similarly, Alaska has no wage tax and taxes sales only at the local level.

The totals for 2007 were $269 billion deducted in state-local income taxes and $18.5 billion deducted in state-local sales taxes. It’s lopsided in favor of income tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions. s because most of the states that impose both types of tax collect more in income tax from the higher-income people who itemize their returns. Those numbers are in Figure E of this massive compendium of tax stats now available from the IRS for tax year 2007.