We often get questions, and inevitable misunderstandings, regarding the difference between 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 and tax burdens by state. A tax burden is a calculation of the total amount paid by residents in taxes divided by the total income in each state (when looked at as percentage of state income). The burden also reflects the economic incidence of taxes that are commonly shifted to out-of-state taxpayers. Tax collections are simply what a state collects in taxes (which is to say, not the same as revenue).
Tax Foundation economist Gerald Prante, regarding tax burdens, notes:
The goal is to focus not on the tax collectors but on the taxpayers. That is, we answer the question: What percentage of their income are the residents of this state paying in state and local taxes? We are not trying to answer the question: How much money have state and local governments collected? The Census Bureau publishes the definitive comparative data answering that question.
Here are some examples of the difference between collections (focusing on the tax collector) and burdens (focusing on the taxpayer).
- When Connecticut residents work in New York City and pay income tax there to both the state and the city, the Census Bureau will duly tally those amounts as New York tax collections, but we will count them as part of the tax burden of Connecticut’s residents.
- When Illinois and Massachusetts residents own second homes in nearby Wisconsin or Maine, local governments in Wisconsin and Maine will tally those 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. collections, but we will shift those payments back to the states of the taxpayers.
- When people all over the country vacation in Disney World or Las Vegas, tax collectors will tally the receipts from lodging, rental car, restaurant and general 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 in Florida and Nevada, but we will use economic tools to tally those payments in the states where the vacationers live
Here I’ll provide maps of Tax Foundation calculated tax burdens by state and tax collections per state for comparison. As you can see, a few states significantly move in ranks. Alaska and North Dakota have a low tax burden—50th and 33rd respectively—while very high tax collections—1st and 6th highest in the country. This disparity is caused by their oil, which states tax before it is sold to people outside of the state.