During the 2011 tax season, Americans paid 9.8% of their income in state and local taxes — on top of taxes collected by the federal government. This number, according to a report by the Tax Foundation, was up from 9.3% in 2000, but was basically unchanged from 2009.
Generally, tax burdens were highest on the East Coast, while residents of Midwestern and Southern states often faced lower tax burdens. Residents of New York and New Jersey paid more than 12% of their income in state and local taxes, the most in the nation. Wyoming residents, on the other hand, paid less than 7%. Based on research conducted by the Tax Foundation, these are the states where taxes were the highest and lowest as a percentage of total income.
According to Lyman Stone, economist at the Tax Foundation, the report demonstrates the enormous differences in state tax policies. While some states did away with certain taxes altogether, others adopted a wider range. States with low tax burdens often eliminated a major type of tax. Most of the states with the lowest tax burdens either did not have an individual income tax or only taxed income from dividends and interest. And two low-tax states, Alaska and New Hampshire, did not have sales taxes at all.
On the other hand, states that had high tax burdens typically utilized a wide range of taxes. “High tax states tend to be those that not only have high [tax] rates but tax a lot of different things in a lot of different ways,” Stone said.
New York, the state with the highest tax burden in America, was one of just two states that taxed wealthy individuals the top tax rate on all the income they earned, not just on earnings above the tax bracket’s threshold. California not only had the highest top income tax rate, but it also added a 1% uniform local sales tax to all transactions — in addition to its state sales tax.
Many of the states with low taxes benefit from having considerable taxable resources aside from the incomes, property, and spending of their residents. In the case of Nevada, gaming was a major source of revenue. For states such as Wyoming and Alaska, severance taxes — charged on businesses producing oil and natural gas — have historically been a large source of revenue.
These revenues have kept tax burdens low in these states. However, Stone noted this did not necessarily mean the states were employing good policy. While taxes on companies involved in oil and gas extraction or gambling may allow a state to collect revenue from non-residents, at some point, he added, “someone bears that tax.”
Generally, states with wealthier residents tended to collect more in taxes. Seven of the 10 states with the highest tax burdens had a per capita income greater than the national average of $42,473. The three states with the highest tax burdens — New York, Connecticut and New Jersey — were all in the top five states nationwide for per capita income.
To identify the states with the highest and lowest tax burdens, 24/7 Wall St. reviewed state and local tax burden as a share of state residents’ income, as provided by the Tax Foundation. This includes all taxes paid by residents to the state or to various localities, such as their city and school districts. Figures are current as of fiscal year 2011, except where otherwise noted. In addition to tax data from the Tax Foundation, 24/7 Wall St. also reviewed figures from the U.S. Census Bureau and the Bureau of Economic Analysis (BEA) for 2012.
These are the states with the highest and lowest taxes.