Where Governments Get Their Revenue: A Comparison Across States

August 3, 2006

Gerald Prante

Gerald Prante

The Tax Foundation has recently compiled three tables on sources of government revenue courtesy of new data released by the Census Bureau for fiscal year 2004. The tables compare how different governments across states get their revenue through what sources, be it from other governments (i.e. intergovernmental transfers), specific types of taxes like income, sales, or property, or through non-tax revenue sources like lotteries.

There are three tables. The first available here looks at revenue sources for state governments. Another (available here) compares revenue sources for local governments for each state. And the third table combines all governments in a state (both state government and all local governments) and looks at how these governments as a whole get their revenue.

The tables give a percentage of governments’ general revenue that comes from seven different sources: Revenue from Other Governments; Revenue from All Own Taxes; Revenue from Own Property Taxes; Revenue from Own Individual Taxes; Revenue from Own Corporate Income Taxes; Revenue from Own Sales Taxes; and Revenue from Own Non-Tax Sources.

Some notable highlights from the state and local governments combined table:

Governments in Wyoming, Mississippi, Montana, South Dakota, and New Mexico rely most on the federal government as a general revenue source. Governments in Delaware, Connecticut, New Jersey, Virginia, and Nevada rely least on the federal government for general revenue.

Governments in New Hampshire, New Jersey, Connecticut, Illinois, and Texas rely most heavily on property taxes. Governments in Louisiana, Arkansas, Delaware, New Mexico, and Alabama rely least heavily on property taxes as a source of general revenue.

Over 44 percent of all general revenue for Alaskan governments comes from non-tax revenue sources, which is highest among the 50 states. Just 16 percent of all general revenue in Connecticut comes from non-tax revenue sources, the lowest of the 50 states.

Governments in Maryland, Oregon, Massachusetts, New York, and Virginia rely most heavily on individual income taxes as a source of general revenue. Note: Oregon is on this list as it has no state sales tax.

Governments in Nevada, Washington, Hawaii, Tennessee, and Florida rely most heavily on sales taxes as a source of general revenue. Each of these states, except Hawaii, has no state individual income tax.

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A 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.

A 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.

A 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.

An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.