Tax Burdens Examined Across US States

February 25, 2011 Taxation in USA

Tax Burdens Examined Across US StatesUS states, which rely heavily on tax revenues from out-of-state residents, have been shown to be able to impose a significantly lower tax burden on local residents.

On February 23rd the Tax Foundation released a new report regarding the tax burdens faced by taxpayers across different US states, with an investigation into the proportion of a state’s tax revenues that are collected from out-of-state residents.

The newly published report examined the cumulative effects of state- and local-level taxes on US taxpayers throughout the 2009 year. The state of New Jersey was found to have the highest level of such taxes, at a rate of 12.2 percent. Rates in New York and Connecticut were the second and third largest respectively, with a cumulative rate of 12.1 percent and 12.0 percent. The study indicated that the US average State-Local tax rate was 9.8 percent. Alaska was found to have the smallest tax burden among all US states, at only 6.3 percent. Nevada and South Dakota were ranked as the next lowest, at levels of 7.5 percent and 7.6 percent respectively.

According to the report, across the US, more than one quarter of all state- and local-level taxes are collected from out-of-state residents. As the most prominent example of tax exporting, Alaska gathers nearly 80 percent of its tax revenues from residents of other states, predominantly due to levies imposed on non-resident oil extraction companies and income taxes for out-of-state oil field workers. Similarly, the state of Wyoming sees a significant portion of its tax revenues collected from non-residents coal processing workers and companies. States with popular tourist destinations, such as Nevada and Florida, were also noted to be collecting large portions of their tax revenues from non-residents. All states that were seen as having a significant reliance on tax exporting were found to have significantly lower tax burdens for their residents. The report noted that the states with the heaviest reliance on out-of-state residents for tax revenues were endowed with abundant exportable natural resources or a large tourism industry. For states without similar advantages, a policy of tax exporting could “create a myriad of problems when they blatantly shift tax burdens to residents of other jurisdictions”.

Photo by Tracy O