August 27, 2010 Where Do State and Local Governments Get Their Tax Revenue? Ryan Forster Kail Padgitt Ryan Forster, Kail Padgitt Print this page Subscribe Support our work Download Fiscal Fact No. 242 Fiscal Fact No. 242 Introduction Newly released Census data show how different the 50 states’ fiscal systems are. Their reliance on various sources of tax revenue differs widely because they have different endowed resources and policy priorities. These differences are reflected in state-local tax collections no matter how large or small a fraction of the residents’ income state and local governments have decided to take in taxes. States heavily endowed with valuable natural resources, such as Alaska and Wyoming, will usually exploit those tax revenue sources, which they can do without much fear of driving the activity out of state, given that those natural resources are largely immobile. States with more tourism like Nevada and Florida rely more heavily on sales taxes so that they can forgo taxing income. A calculated decision by a state to concentrate taxation in a few sources is a plus for the state’s taxpayers, significantly lowering the administrative burden for government and taxpayers and making the state tax climate conducive to economic growth. Of course, that means relying more heavily on the remaining tax sources for revenue. Tables 1-4 are “top ten” tables, highlighting the states that rely heavily on each of four major categories: property taxes, individual income taxes, general and selective sales taxes,[1] and licenses and other taxes.[2] The data are the latest available for states and localities, fiscal year 2008, which stretched from July 1, 2007, to June 30, 2008. Combined state-local data is best for interstate comparison because what some states accomplish with local taxes is accomplished in other states with state-level taxes. In particular, several states have converted traditionally local property taxes that fund public schools into state-level taxes in response to court decisions. New Hampshire is an outlier on property tax dependence (see Table 1) because it is the only state with neither a wage tax nor a state or local general sales tax. In addition, New Hampshire has no substantial mineral resources that would generate severance tax revenue. Florida and Texas are also more reliant on property taxes because they have chosen not to tax personal income. All of the other states especially dependent on property taxes are in the northeast and Midwest. Table 1 In Which States Do Governments Rely Most on Property Taxes? Fiscal Year 2008 State Fraction of Tax Revenue Coming from Property Taxes New Hampshire 61.6% Rhode Island 42.3% New Jersey 42.2% Florida 41.3% Vermont 40.1% Texas 38.8% Michigan 37.5% Illinois 36.8% Wisconsin 36.2% Connecticut 36.0% Note: Includes residential and commercial real estate (mostly local revenue) as well as personal property taxes on cars, boats, etc. (mostly state revenue). Source: Tax Foundation calculations based on data from Census Bureau’s government finance data for state and local governments during fiscal year 2008. Six states derive more than half their state-local revenue from general and selective sales taxes (see Table 2). Tennessee, Nevada and South Dakota rank 1, 2, 3 and use the revenue to forgo wage taxes. Table 2 In Which States Do Governments Rely Most on Sales Taxes? Fiscal Year 2008 State Fraction of Tax Revenue from General and Selective Sales Taxes Tennessee 57.9% Nevada 55.7% South Dakota 54.3% Louisiana 52.9% Hawaii 51.5% Arkansas 51.4% Arizona 48.3% Mississippi 47.0% Florida 46.9% Alabama 46.8% Note: The major selective sales taxes are levied on motor fuel, tobacco, insurance premiums, public utilities (power, telephone service, etc.), amusements and alcoholic beverages. Source: Tax Foundation calculations based on Census Bureau’s government finance data for state and local governments during fiscal year 2008. Marylanders pay the highest average local income taxes in the country, making the state more dependent than any other on personal income taxes (see Table 3). Oregon is the next most dependent because it imposes no general sales taxes at the state or local level. Table 3 In Which States Do Governments Rely Most on Personal Income Taxes? Fiscal Year 2008 State Fraction of Tax Revenue from Personal Income Taxes Maryland 40.4% Oregon 39.7% Massachusetts 36.8% New York 33.6% North Carolina 33.1% Connecticut 32.5% Kentucky 32.0% Minnesota 31.5% Virginia 30.9% Ohio 30.0% Note: States and localities generally lump wages, dividends, interest and capital gains together when applying their individual income taxes. Source: Tax Foundation calculations based on data from Census Bureau’s government finance data for state and local governments during fiscal year 2008. Most of the states heavily dependent on license revenue and other taxes are generating severance tax revenue from mining activity (see Table 4). Timber in Oregon, coal in Wyoming, oil in Alaska, Texas and Oklahoma: these are revenue sources most states do not have. Delaware derives much revenue from corporation licenses, and Nevada depends on gambling taxes. Table 4 In Which States Do Governments Rely Most on Licenses and Other Taxes? Fiscal Year 2008 State Fraction of Tax Revenue Coming from Licenses & Other Taxes Alaska 73.1% Delaware 33.5% North Dakota 30.7% Wyoming 28.6% Montana 20.1% New Mexico 19.0% Oklahoma 18.8% Texas 14.3% Nevada 13.9% Oregon 13.2% Note: Licenses include taxes imposed on motor vehicle licenses, business or corporation licenses, and hunting or fishing licenses. Other taxes include severance taxes (natural resources), stock transfer taxes, and estate/gift taxes. Source: Tax Foundation calculations based on data from Census Bureau’s government finance data for state and local governments during fiscal year 2008. Nationwide, states and localities are most dependent on property taxes, collecting over 30 percent of their total tax revenue from that source (see Table 5). In fiscal year 2008, states and localities were, as a group, equally dependent on sales and income taxes. Each provided 22.9 percent of total revenue. Licenses and other taxes provided 8.2 percent of total state and local revenue, and corporate income tax revenue provided 4.3 percent. Table 5 State and Local Tax Revenue by Major Source as a Percentage of Total Revenue Fiscal Year 2008 Property Tax Sales Tax Individual Income Tax Corporate Income Tax Licenses and Other Taxes General Sales Selective Sales United States 30.8% 22.9% 10.8% 22.9% 4.3% 8.2% Alabama 16.4% 29.5% 17.3% 22.7% 3.7% 10.3% Alaska 11.0% 2.2% 3.6% 0.0% 10.1% 73.1% Arizona 29.2% 39.6% 8.7% 14.8% 3.4% 4.3% Arkansas 15.5% 39.5% 11.9% 24.9% 3.6% 4.4% California 28.4% 22.1% 6.7% 30.0% 6.4% 6.5% Colorado 31.2% 26.8% 7.8% 25.8% 2.6% 5.8% Connecticut 36.0% 15.3% 9.8% 32.5% 2.6% 3.8% Delaware 16.3% 0.0% 13.2% 28.7% 8.3% 33.5% Florida 41.3% 31.2% 15.8% 0.0% 3.0% 8.7% Georgia 30.4% 29.1% 8.6% 26.3% 2.8% 2.9% Hawaii 18.6% 38.9% 12.6% 22.9% 1.6% 5.4% Idaho 23.9% 27.3% 8.6% 29.1% 3.9% 7.2% Illinois 36.8% 16.1% 17.2% 17.8% 5.4% 6.6% Indiana 30.2% 25.0% 12.0% 23.5% 4.0% 5.3% Iowa 32.2% 21.1% 11.2% 25.4% 3.0% 7.1% Kansas 31.0% 25.8% 8.7% 24.8% 4.4% 5.3% Kentucky 19.6% 20.3% 16.8% 32.0% 4.6% 6.6% Louisiana 15.8% 39.6% 13.3% 17.7% 3.9% 9.7% Maine 36.4% 17.9% 10.9% 26.3% 3.1% 5.4% Maryland 23.9% 13.6% 11.1% 40.4% 2.7% 8.4% Massachusetts 34.3% 12.1% 6.3% 36.8% 6.4% 4.2% Michigan 37.5% 21.8% 10.6% 20.3% 4.7% 5.0% Minnesota 26.8% 18.9% 12.3% 31.5% 4.2% 6.3% Mississippi 25.0% 34.0% 13.0% 16.8% 4.2% 7.0% Missouri 27.6% 25.4% 11.2% 27.5% 1.9% 6.3% Montana 34.1% 0.0% 15.9% 25.2% 4.7% 20.1% Nebraska 33.1% 25.0% 8.1% 23.0% 3.1% 7.7% Nevada 30.4% 31.9% 23.9% 0.0% 0.0% 13.9% New Hampshire 61.6% 0.0% 16.0% 2.4% 12.4% 7.7% New Jersey 42.2% 16.6% 6.9% 23.4% 5.2% 5.6% New Mexico 14.5% 35.7% 10.5% 15.7% 4.6% 19.0% New York 28.3% 16.7% 7.9% 33.6% 8.2% 5.5% North Carolina 23.7% 21.8% 11.8% 33.1% 3.6% 6.0% North Dakota 23.3% 19.6% 11.3% 10.0% 5.1% 30.7% Ohio 29.1% 20.4% 11.1% 30.0% 1.9% 7.5% Oklahoma 17.2% 29.3% 9.1% 22.6% 2.9% 18.8% Oregon 34.0% 0.0% 8.8% 39.7% 4.3% 13.2% Pennsylvania 28.7% 17.0% 12.4% 26.5% 4.1% 11.3% Rhode Island 42.3% 17.4% 11.2% 22.4% 3.0% 3.6% South Carolina 32.7% 24.1% 10.8% 21.8% 2.4% 8.3% South Dakota 34.3% 40.1% 14.3% 0.0% 2.8% 8.4% Tennessee 24.6% 46.3% 11.6% 1.5% 5.3% 10.7% Texas 38.8% 31.3% 15.5% 0.0% 0.0% 14.3% Utah 23.7% 27.9% 10.4% 27.7% 4.2% 6.2% Vermont 40.1% 11.7% 17.8% 21.2% 2.9% 6.3% Virginia 32.3% 14.5% 11.7% 30.9% 2.4% 8.1% Washington 27.3% 48.0% 14.6% 0.0% 0.0% 10.0% West Virginia 19.3% 17.3% 19.8% 23.6% 8.4% 11.7% Wisconsin 36.2% 18.7% 8.7% 27.2% 3.5% 5.5% Wyoming 34.1% 32.9% 4.4% 0.0% 0.0% 28.6% Dist. of Columbia 32.0% 16.6% 9.1% 25.1% 7.8% 9.4% Notes: Property tax includes residential and commercial real estate (mostly local revenue) as well as personal property taxes on cars, boats, etc. (mostly state revenue). The major selective sales taxes are levied on motor fuel, tobacco, insurance premiums, public utilities (power, telephone service, etc.), amusements and alcoholic beverages. State and local governments generally lump wages, dividends, interest and capital gains together when applying their individual income taxes. In license category, taxes are imposed on motor vehicle licenses, business or corporation licenses, and hunting or fishing licenses. In category of other taxes, major revenue sources are severance taxes (natural resources), stock transfer taxes and estate/gift taxes. Source: Tax Foundation calculations based on data from Census Bureau’s government finance data for state and local governments during fiscal year 2008. [1] The major selective sales taxes are levied on motor fuel, tobacco, insurance premiums, public utilities (power, telephone service, etc.), amusements and alcoholic beverages. [2] Major fees are imposed on motor vehicle licenses, business or corporation licenses, and hunting or fishing licenses. Major tax sources are severance taxes (natural resources), stock transfer taxes, and estate/gift taxes. Topics Center for State Tax Policy Corporate Income Taxes Data Individual Income and Payroll Taxes Property Taxes Research Sales Taxes Tags State Tax and Spending Policy
