Fiscal Fact No. 242
Introduction
Newly released Census data show how different the 50 states’ fiscal systems are. Their reliance on various sources of 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. 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 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. dependence (see Table 1) because it is the only state with neither a wage tax nor a state or local 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. . 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.
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Table 1 Fiscal Year 2008 |
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|
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.
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Table 2 Fiscal Year 2008 |
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|
State |
Fraction of Tax Revenue from General and Selective Sales Taxes |
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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.
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Table 3 In Which States Do Governments Rely Most on Personal Income Taxes? Fiscal Year 2008 |
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|
State |
Fraction of Tax Revenue from Personal Income Taxes |
|
Maryland |
40.4% |
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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.
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Table 4 In Which States Do Governments Rely Most on Licenses and Other Taxes? Fiscal Year 2008 |
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|
State |
Fraction of Tax Revenue Coming from Licenses & Other Taxes |
|
Alaska |
73.1% |
|
Delaware |
33.5% |
|
North Dakota |
30.7% |
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Wyoming |
28.6% |
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Montana |
20.1% |
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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 taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. revenue provided 4.3 percent.
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Table 5 State and Local Tax Revenue by Major Source as a Percentage of Total Revenue Fiscal Year 2008 |
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|
Property |
Sales Tax |
Individual |
Corporate |
Licenses |
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|
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 taxA gift tax is a tax on the transfer of property by a living individual, without payment or a valuable exchange in return. The donor, not the recipient of the gift, is typically liable for the tax. es.
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