New State/Local Tax Burden Report Shows New Jersey Has Highest Tax Burden, Alaska Lowest

August 7, 2008

Everyone knows that federal taxes take a huge bite out of our paychecks, but we can’t overlook the role of state and local taxes. The size of the state and local tax burden varies by state, of course, and changes over time within each state.

In a new Tax Foundation Special Report, “State-Local Tax Burdens Dip As Income Growth Outpaces Tax Growth,” senior economist Gerald Prante computes each state’s combined state-local tax burden, accounting for taxes paid out of state.

The nation as a whole paid 9.7% of its income in state-local taxes, down from 9.9% in 2007 primarily because income grew faster than tax collections between 2007 and 2008.

New Jersey residents paid 11.8%, topping the charts. New Yorkers were close behind, paying 11.7%, and Connecticut was third at 11.1%. The top ten were rounded out by Maryland (10.8%), Hawaii (10.6%), California (10.5%), Ohio (10.4%), Vermont (10.3%), Wisconsin (10.2%) and Rhode Island (10.2%).

Alaskans pay the least, 6.4 percent in 2008, but Nevada is close at 6.6 percent. In four states the residents pay between 7 and 8 percent of their income in state-local taxes: Wyoming (7.0%), Florida (7.4%), New Hampshire (7.6%) and South Dakota (7.9%). Four other states round out the bottom ten: Tennessee (8.3%), Texas (8.4%), Louisiana (8.4%) and Arizona (8.5%).

Tax Foundation rankings are sometimes confused with rankings based on Census Bureau’s tallies of state and local tax collections. The difference is out-of-state tax payments. When state and local governments collect large amounts from non-residents, whether as tourists, commuters, businesses or property owners, Census counts those payments in the collections of the taxing state; the Tax Foundation study counts them in the residential state of the taxpayer.

Read the full report. View the data by state or by year. Click here for more details on each state’s tax system.

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