When filling out the federal form 1040, a taxpayer may deduct either the amount he paid in state-local income taxes or state-local sales taxes, but not both. As a result, the 13 states that combine all their 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. 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 taxes. 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 deductions 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.
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