Accounting News

Friday, October 26, 2012
States with the Highest Taxes

Tax Time
The Tax Foundation has released their numbers for state and local tax burdens. The report estimates the total for income taxes and sales taxes payed to state and local agencies. Numbers reported are from 2010 so things may have changed in your area in the last two years.

So lets look at the big picture before we dive into the top ten. On average, Americans pay 9.9% of their income to local and state governments. It is up from ten years ago when it was 9.3%. Some of the gain can be accounted for by the drop in the average income. So these governments have less in tax revenue which explains a lot of their budget problems.

The states with the lowest tax burdens are:

  1. Alaska -- 7.0%
  2. South Dakota -- 7.6%
  3. Tennessee -- 7.7%
  4. Louisiana -- 7.8%
  5. Wyoming -- 7.8%
  6. Texas -- 7.9%
  7. New Hampshire -- 8.1%
  8. Alabama -- 8.2%
  9. Nevada -- 8.2%
  10. South Carolina -- 8.4%
One way many of these states keep their tax burdens on residents low is by collecting more in taxes from people who live outside of the state. The Nevada tourism keeps their taxes low. Another strategy that helps Alaska, Louisiana, Texas and Wyoming is to collect taxes on their oil reserves. It is a good strategy if you are lucky enough to be sitting on oil. The last strategy to keep taxes low is to keep government smaller. This is how New Hampshire makes the list.

We have seen who pays the least in taxes so here are the states with the highest tax burdens:
  1. New York -- 12.8%
  2. New Jersey -- 12.4%
  3. Connecticut -- 12.3%
  4. California -- 11.2%
  5. Wisconsin -- 11.1%
  6. Rhode Island -- 10.9%
  7. Minnesota -- 10.8%
  8. Massachusetts -- 10.4%
  9. Maine -- 10.3%
  10. Pennsylvania -- 10.2%
There is an obvious pattern. The states in the northeast have the highest tax rates in the country. The one state that sticks out is Wisconsin. They collect property taxes at the same rate everywhere in the state. As a result, the tax burden for middle income earners is higher here than for most states. As a result the tax burden for the wealthy is lower relative to other states.

Many people think about the taxes that they pay to Washington but don't consider their sales taxes and property taxes. When it is 9.9% of the average income it is not something that should be ignored. It may make sense to adopt tax planning strategies for local taxes along with federal taxes. 

Labels: , ,