California Makes Major Changes to Key Tax Administrative Body

Tax Policy – California Makes Major Changes to Key Tax Administrative Body

On June 15, the California Legislature passed the Taxpayer Transparency and Fairness Act (SB 86 and AB 102), which restructures the Board of Equalization and creates two new agencies. This legislation will remake an agency responsible for one-third of California’s tax revenue and strengthen its oversight, with most changes taking effect by July 1.

The bill makes the following changes:

  • Creates the California Department of Tax and Fee Administration (CDTFA)
  • Establishes the Office of Tax Appeals (OTA)
  • Limits BOE authority to overseeing property tax assessments, utility tax assessments, and tax assessments on insurers

So, what happened?

The cloud over BOE had been darkening for some time. The agency was already struggling to explain a 2015 audit that revealed the misallocation of $47.8 million in sales tax revenue. California’s state constitution established the Board of Equalization in 1879, originally to ensure that county property tax assessments were equal and uniform but their authority now includes sales and use taxes, special taxes, and tax appellate programs. (The separate Franchise Tax Board collects the state’s income and business taxes.)

The growing volume and frequency of the BOE’s critics was probably the best indication that change was imminent. State Controller Betty Yee called for stripping the BOE’s authority even before the March audit report was released. San Francisco board member Fiona Ma requested direct intervention from Governor Brown (D) to appoint a public trustee to manage the BOE.

On the other side of the debate, taxpayer advocacy groups expressed concern that such a drastic change to one of the primary tax administrative bodies would have a negative impact on the public’s rights, especially the tax appeals process. The status quo under BOE allowed citizens and business owners to address tax disputes without hiring attorneys or navigating a complex court system. Individuals could contact the BOE members directly to ask questions and understand tax laws. Under this bill, taxpayers would have to go through the new CDFTA or the new OTA to make their case to administrative law judges.

The BOE employs more than 4,000 people and manages $60 billion in tax revenue. With less than two weeks before the first changes take effect, the complicated logistics of an overhaul could mean that taxpayers lose out. Some have pointed out that shifting authority to unelected political appointees would stifle responsiveness and accountability to the public. Opponents also argue that this dramatic change should have at least been afforded a period of public comment.

There was another framework for reform proposed. Assemblyman and chair of the Assembly Revenue and Taxation Committee Sebastian Ridley-Thomas proposed AB 1210. This legislation would have provided a more measured approach to reform that would protect the rights of taxpayers in the process. Its key provisions would have required disclosure of private communication with anyone subject to tax appeal proceedings, allowed board members to select and terminate the BOE’s executive director and general counsel, and state the intent to create the Office of Inspector General. AB 1210 was supported by the California Chamber of Commerce, the California Taxpayer Association, and numerous other groups. However, Assemblyman Ridley-Thomas was ultimately unsuccessful in slowing the push for the more dramatic overhaul.

The Brown administration, which has already taken steps to temporarily curtail the BOE’s duties, does support the overhaul legislation. It is expected to earn Governor Brown’s signature as part of the overall budget bill.


Source: Tax Policy – California Makes Major Changes to Key Tax Administrative Body

Complicated Taxes for Business Travelers Might Be Getting Easier

Complicated Taxes for Business Travelers Might Be Getting Easier

Tax Policy – Complicated Taxes for Business Travelers Might Be Getting Easier

Today, the U.S. House of Representatives passed HB 1393, the Mobile Workforce State Income Tax Simplification Act of 2017, via voice vote. This is a welcome step to simplifying the collection and administration of state individual income taxes.

Complying with state income taxes for business travelers is a headache. Most states technically require such payments when someone is in the state for even a day (see map below), and even that withholding to be set up in advance. Such practices disrupt interstate commerce and falsely suggest that business travelers earn their income in traveling states and not from the home office. We’ve increasingly heard horror stories of states trying to collect these sums.

HB 1393 would limit states from imposing or collecting individual income tax on people who are in the state for less than 30 days.

Since all states provide a credit for taxes paid to another state, making people fill out 20 or 30 tax returns for a net national wash is lunacy. Most everyone, except some state tax administrators, supports this legislation. (State tax administrators instead urge states to voluntarily adopt a more convoluted model, which no state has done.)

Growing state efforts to raid revenue from business travelers who are in the state for only a few days have created needless complexity and threaten to harm interstate commerce. The Constitution empowers Congress to limit the power of states to tax interstate commerce. Prohibiting states from requiring payment or withholding of income taxes from someone in the state for less than 30 days is a fair balance.

Previous Congresses have considered this legislation. In 2016, the U.S. House approved it via voice vote. However, the bill has struggled to pass the U.S. Senate.

Lead sponsors of Mobile Workforce are Reps. Mike Bishop (R-MI) and Hank Johnson (D-GA) on the House side and Sen. Sherrod Brown (D-OH) and John Thune (R-SD) on the Senate side. The Senate companion legislation is S.540.

Mobile Workforce Coalition


Source: Tax Policy – Complicated Taxes for Business Travelers Might Be Getting Easier

Full Expensing is a Worthwhile Policy, Even if Not All Businesses Like It

Tax Policy – Full Expensing is a Worthwhile Policy, Even if Not All Businesses Like It

It is a poorly-kept secret in Washington, D.C., that a number of large corporations are not particularly fond of full expensing – a policy that features prominently in the House Republican tax reform plan. These corporations sometimes argue that full expensing would not be as conducive to their investment as a simple corporate rate cut, or that it would not be as helpful to their bottom line. However, policymakers should take these concerns with a grain of salt; full expensing remains a sensible, pro-growth policy, despite the financial considerations that might lead some companies to prefer a rate cut.

For some background: under the current U.S. tax code, when a business makes a capital investment – such as purchasing a machine or a factory – it is required to deduct the cost over a long time period, according to a set of depreciation schedules. There is strong reason to believe that this serves as a barrier to business investment, because businesses do not value depreciation deductions in the future as much as deductions in the present. As a result, many lawmakers have proposed moving to a system of full expensing – allowing businesses to immediately deduct the full cost of their investments – as a way of removing the bias against investment in the business tax code.

Despite the strong economic case for full expensing, it has never been a particularly popular policy among large corporations. In 2006, economist Tom Neubig wrote an article titled “Where’s the Applause? Why Most Corporations Prefer a Rate Cut,” in which he observed the tepid reaction of corporations to a Bush administration proposal for full expensing:

One might have expected that this plan – which many economists claim would result in a zero effective tax rate for new capital investment – would have inspired a standing ovation from corporate finance and tax officers. Instead, the response has been similar to the proverbial sound of “one hand clapping.”

The apathy of some large corporations toward full expensing continues today. At the Tax Foundation, we sometimes hear anecdotal reports about businesses telling lawmakers that “full expensing doesn’t help our bottom line” or that “we don’t make investment decisions based on the timing of deductions.” These reports are hard to square with our analysis, which concludes that full expensing would be one of the most effective tax changes for encouraging business investment and economic growth.

To understand the disconnect between economists and large corporations here, it may be useful to veer from pure policy analysis and to examine the reasons why some companies may not be enthused about full expensing. As far as I can tell, there are four main reasons why some corporations aren’t interested in full expensing – but none is particularly convincing from a policy perspective.

1) Some large companies may be more interested in preserving their market share than growing their businesses.

Full expensing only benefits companies that are undertaking new investments in the United States. However, some businesses may not be interested in pursuing new investment opportunities; instead, they might be more focused on maximizing their profits from existing investments. For companies that are uninterested in expanding their operations and growing their business, full expensing has less to offer.

In fact, for some large businesses, full expensing might even present a threat: it would make it easier for smaller competitors to scale up their operations and vie for market share. If a large business is primarily interested in preserving its market share, then it might naturally be wary of policies like full expensing, which would make it easier for competitors to expand.

While this is a perfectly understandable rationale for why a business might not be enthused about full expensing, it is not a particularly relevant consideration for policymakers designing a tax reform bill. If lawmakers are interested in promoting investment and economic growth, they should not be concerned if their tax reform bill delivers little benefit to businesses that don’t want to invest and grow.

2) Full expensing does not provide a tax cut for past economic activity.

Some tax policies are structured in a way that delivers windfall gains to businesses with existing profits. For instance, a corporate rate cut to 25 percent would not only reduce taxes on business profits going forward, but would also reduce taxes on profits that result from investments made in previous years. Understandably, some companies prefer to receive tax cuts on past economic activity, especially if they have significant deferred tax liabilities that have not yet been paid.

Full expensing, on the other hand, does not automatically reduce taxes on profits earned by companies from past economic activity. Instead, full expensing only reduces taxes for companies that reinvest their past profits into the business; in other words, it only reduces taxes on new economic activity. For companies that would prefer to receive windfall gains on their current earnings, full expensing may not be an appealing policy.

Again, this is a reasonable position for a company to take, but not a compelling policy consideration. Lawmakers should not be concerned if a tax policy fails to deliver windfall gains to existing large companies; indeed, reducing taxes on profits earned in the past does little to encourage ongoing economic growth. Instead, lawmakers should focus on whether policies would fix distortions in the tax code going forward.

(One note: none of the above is intended to imply that a lower marginal corporate rate is not a worthwhile goal. Indeed, a lower corporate rate and full expensing would complement one another, as the two policies cost less in combination than they would separately.)

3) Some companies may already receive tax treatment close to full expensing.

Under the current tax code, businesses are subject to widely disparate tax treatment on their capital investments. A few categories of investments – such as research and development costs, advertising, and many other intangible assets – can be deducted fully and immediately. Other investments are subject to an array of depreciation schedules, ranging from three years (for certain short-lived equipment) to 39 years (for nonresidential buildings). These classifications and schedules are largely arbitrary, which means that some industries receive much more favorable tax treatment for their capital investments than others.

If you’re a company that happens to receive favorable tax treatment on your capital investments under the current tax code, then you might not have much to gain from a move to full expensing. For instance, companies that invest primarily in intellectual property might not be helped much by full expensing, given that much of their intangible investment is already fully expensable.

Of course, just because some companies would not benefit greatly from full expensing doesn’t mean that the policy is not worthwhile. After all, one of the main arguments for full expensing is that it would level the playing field among different industries, providing the greatest assistance to those industries most held back by the current system of depreciation.

4) Full expensing does not directly affect earnings-per-share on corporate financial statements.

Perhaps the most important reason why some large corporations are not interested in full expensing has to do with a quirky feature of how public companies report their profits to shareholders.

When a U.S. public corporation releases a financial statement to its shareholders, it generally does so using a set of accounting principles known as GAAP. These financial statements are taken seriously by shareholders, who use them to judge a company’s performance and evaluate whether to invest in it. Consequently, many companies also focus a great deal on their own financial statements, seeking ways to make sure that their income appears as high as possible. Importantly, one of the indicators that is included on a company’s financial statement is a measure of its “effective tax rate”: the total current and deferred tax liabilities that a company accrues over the course of the year, divided by its income.

However, when calculating effective tax rates, the GAAP system requires companies to essentially ignore the difference between deductions claimed in the current year and deductions taken in the future. In effect, the GAAP system pretends that firms have a discount rate of zero percent, for the purposes of accounting for the timing of tax payments. As a result, policies that allow companies to take more deductions in the present do not have any impact on a firm’s effective tax rate or earnings-per-share, according to GAAP.

This is especially relevant in the case of full expensing, which shifts all of a company’s deductions for its investments into the current year. Even though full expensing would greatly increase the present value of deductions for capital investment, the GAAP system treats it as having no effect on a business’s bottom line.

Because some large corporations measure their success by looking at their GAAP financial statements, these businesses sometimes perceive full expensing as having little benefit to them. Instead, these companies often advocate for tax policies that would directly lower their GAAP effective tax rate, such as rate cuts and tax credits. In a 2012 congressional hearing, Michelle Hanlon, an accounting professor, pointed directly to this dynamic:

When asked, corporate management will often reveal a preference for a rate cut over bonus depreciation for several reasons, one of which is that there is no reduction in income tax expense on the income statement but there would be with a rate cut.

What should lawmakers make of the phenomenon where businesses claim not to care about the timing of deductions for capital investments? When taken to the extreme, this claim is obviously absurd. No company would be able to claim with a straight face that it would be indifferent to a $1 million deduction today versus a $1 million deduction in 50 years, nor would it be able to claim that its shareholders are blind to this distinction.

More importantly, lawmakers should not evaluate tax policies through the idiosyncratic lens of accounting principles. If the tax code is biased against investment, then lawmakers should fix this bias, regardless of whether it is salient to large, public corporations. The current corporate tax punishes companies for undertaking new investments – and whether or not this bothers businesses, it is still a distortion that should be removed from the tax code.

The Constituency of Full Expensing

The other day, a reporter asked me, “Other than well-meaning economists, who is the constituency for expensing? And why aren’t they more vocal regarding the benefits thereof?” He might has well have been asking, “If full expensing is such a great policy, why doesn’t it have a larger constituency?”

I’m not entirely sure of the answer, but allow me to speculate: if full expensing seems not to have a vocal constituency, it is because the true constituency of full expensing is businesses that aren’t yet large enough to be heard.

The companies that would benefit the most from full expensing are those that haven’t been able to expand their operations due to cost recovery barriers in the tax code; firms that are driven into the red because they are taxed on accrued income in years where they receive no cash flow; and businesses that have wasted thousands of hours figuring out the appropriate depreciation schedules for their assets. Because full expensing is a pro-growth policy, the constituency most likely to embrace full expensing is companies that haven’t yet grown.

As the tax reform debate continues, lawmakers are likely to keep hearing from companies that don’t think expensing would benefit their bottom line. In these cases, lawmakers should remember that the tax policies that benefit particular businesses are not necessarily the same as those that are benefit the economy as a whole.


Source: Tax Policy – Full Expensing is a Worthwhile Policy, Even if Not All Businesses Like It

States Adopting Aggressive Online Sales Tax Laws

Tax Policy – States Adopting Aggressive Online Sales Tax Laws

States for years have grappled with how to require online sellers to collect sales taxes. With their tax bases starting to dwindle, policymakers have turned to increasingly aggressive legal interpretations to mandate sales tax collection from out-of-state businesses. Unfortunately, without a simplified congressional solution, remote sellers could face a complex web of state sales tax regulations that create substantial compliance costs.

Because of these varying sales tax rules, in the 1992 Supreme Court case Quill Corp. v. North Dakota, the Court ruled that a state could only require a seller to collect taxes if it had a physical presence (or nexus) in the state. After lobbying Congress for years to address the issue, states have taken the matter into their own hands by expanding nexus laws.

Recently, some states have gone one step further by attempting to ignore the physical presence standard and instead impose an “economic presence” standard. Mostly, these new laws say that after a company passes a certain amount of sales revenue in the state, they have established an economic presence and should therefore collect sales taxes. The hope is that if enough states pursue the issue, one of two things will happen: either Congress will act on the issue or the Supreme Court will agree to hear a case that could overturn the Quill decision.

South Dakota was the first state to pass legislation directly challenging Quill, and a legal challenge is making its way through the court system. Maine lawmakers recently passed similar legislation that is now at the governor’s desk. Both states would require remote retailers to collect sales taxes if their revenue in the state exceeds $100,000. They realize that these laws violate the Quill decision and want the Supreme Court to reevaluate that case. South Dakota stated this intention in court and Maine explicitly acknowledges this in its bill. These states aren’t alone in their desire for a new Supreme Court decision. Alabama, Tennessee, and Massachusetts have sought to impose an economic presence standard through the regulatory process.

States are also starting to consider laws that go after third-party sales facilitated by marketplaces, such as Amazon and eBay. For both these companies, smaller retailers use the online platform to sell their own goods. Even if South Dakota’s economic presence law were enforced, direct sales by Amazon and sales by smaller companies using Amazon’s marketplace could face different treatment. Minnesota has adopted and Washington is considering legislation to address third-party sales by imposing collection requirements on marketplace platforms. The National Conference of State Legislatures released model legislation on marketplace platforms in January 2016.

Congressional Solution Needed

In the past few years, states have become more aggressive in expanding their nexus rules. But the more states expand their ability to apply their sales taxes to out-of-state businesses without simplifying their sales tax laws, the more administrative costs and legal risks are imposed on the interstate economy. Recognizing the administrative burden for in-state businesses, many states offer some sort of compensation for sales tax collections. Maine’s economic presence legislation also acknowledges the potential cost and would allow businesses to keep 2 percent of the sales taxes collected as compensation.

Proposed federal legislation like the Marketplace Fairness Act and the Remote Transactions Parity Act would expand sales tax collection authority, but with the requirement that states simplify their sales taxes to ensure that they do not overly burden the national economy. Finding such a solution is a good first step to protect businesses from costly compliance requirements and still allow states the ability to collect on online consumer purchases.


Source: Tax Policy – States Adopting Aggressive Online Sales Tax Laws

Unpacking the State and Local Tax Toolkit: Sources of State and Local Tax Collections

Unpacking the State and Local Tax Toolkit: Sources of State and Local Tax Collections

Tax Policy – Unpacking the State and Local Tax Toolkit: Sources of State and Local Tax Collections

Key Findings

  • Property taxes remain the primary source of tax collections at the local level, responsible for 72.5 percent of local tax revenue in fiscal year 2014. Once a significant driver of state budgets as well, their share of state collections has dropped to a mere 1.6 percent.
  • While they feature prominently in public debate, corporate income taxes only generated 3.7 percent of state and local tax revenue in fiscal year 2014. They are also among the more volatile sources of revenue for states.
  • Individual income taxes are the second largest source of state tax revenue, though nine states forego the taxation of wage income (of these, two tax interest and dividend income). Income taxes are less pro-growth than consumption taxes because they discourage savings and labor force participation.
  • Sales taxes generated 31.4 percent of state tax revenue in fiscal year 2014, and are a significant source of revenue for all 45 states which impose them. They also constitute a major local government revenue stream in some states, with local governments in three states deriving more than 40 percent of their tax revenue from sales taxes.
  • Significant regional variations exist in tax reliance, with New England states relying the most heavily on property taxes, while Southeastern and Southwestern states lean on sales taxes for a large share of their state and local tax revenue. Severance taxes have an outsized influence in the more resource-rich Far West.
  • The mix of tax sources states choose can have important implications for both revenue stability and economic growth, and the many variations across states are indicative of the different ways that states weigh competing policy goals.

Introduction

Maine has its blueberry tax[1] and the voluminous Alabama constitution specifically provides for mosquito taxes in Mobile County[2]—alas, the tax is levied on property, not mosquitoes—but when state and local governments wish to raise revenue, they generally turn to a traditional canon of tax options, like property taxes, sales taxes, and individual and corporate income taxes. The degree to which states lean on these options, however, and the extent to which they turn to alternatives, varies based on demography, geography, and even ideology.

Oregon derives over two-thirds of state tax revenue from income taxes, while North Dakota raises less than a tenth of its revenue that way. In New England, only 1.4 percent of local government tax revenue comes from sales and gross receipts taxes, compared to 34.0 percent in the Southwest. In “live free or die” New Hampshire, 23.7 percent of state tax revenue is generated by corporate taxes, whereas such taxes are responsible for a mere 2.1 percent of state revenue in Hawaii.[3]

A state with an abundance of natural resources, like North Dakota, might turn predominantly to severance taxes, while one with a high volume of tourists, like Florida, can see value in relying heavily on sales taxes. Some states, particularly in New England, have longstanding traditions of both state and local property taxes, while others, especially in the Southeast, make extensive use of general sales taxes at both levels of government.

Table 1. Sources of State and Local Tax Collection by State (FY 2014)
State Property Tax Sales Tax Individual Income Tax Corporate Income Tax Other Taxes
U.S. Avg. 31.3% 23.3% 22.9% 3.7% 18.9%
Ala. 17.4% 29.7% 22.7% 2.8% 27.4%
Alaska 34.9% 3.9% 0.0% 7.3% 53.8%
Ariz. 29.5% 39.6% 15.4% 2.6% 13.0%
Ark. 18.0% 37.5% 23.4% 3.6% 17.6%
Calif. 25.4% 22.9% 32.2% 4.2% 15.3%
Colo. 31.3% 25.8% 24.2% 3.1% 15.7%
Conn. 38.3% 15.3% 29.8% 2.4% 14.2%
Del. 18.8% 0.0% 26.6% 6.9% 47.7%
Fla. 35.7% 35.3% 0.0% 3.1% 26.0%
Ga. 32.2% 26.0% 26.3% 2.8% 12.7%
Hawaii 17.2% 37.6% 21.5% 1.6% 22.2%
Idaho 28.7% 26.0% 25.3% 3.6% 16.4%
Ill. 36.5% 14.2% 23.5% 6.3% 19.5%
Ind. 25.9% 28.3% 24.4% 3.5% 17.8%
Iowa 34.5% 21.5% 24.1% 2.8% 17.1%
Kans. 32.8% 30.7% 19.8% 2.6% 14.1%
Ky. 20.4% 19.7% 31.3% 5.1% 23.4%
La. 21.6% 38.3% 15.2% 2.7% 22.2%
Maine 39.9% 18.7% 22.1% 2.9% 16.4%
Md. 36.3% 13.6% 32.6% 5.4% 12.1%
Mass. 26.6% 12.5% 37.4% 2.9% 20.5%
Mich. 35.4% 23.3% 22.3% 2.4% 16.7%
Minn. 25.0% 18.3% 31.3% 4.3% 21.1%
Miss. 26.2% 31.5% 15.9% 5.0% 21.4%
Mo. 27.6% 26.4% 27.0% 2.0% 16.9%
Mont. 38.2% 0.0% 27.1% 3.8% 31.0%
Nebr. 26.3% 22.7% 28.9% 3.8% 18.4%
Nev. 11.5% 21.1% 6.9% 3.5% 57.1%
N.H. 66.1% 0.0% 1.6% 9.4% 22.8%
N.J. 47.5% 15.4% 20.8% 4.1% 12.2%
N.M. 18.4% 36.8% 15.7% 2.5% 26.6%
N.Y. 30.7% 16.5% 32.1% 6.9% 13.7%
N.C. 36.0% 23.0% 23.1% 3.3% 14.5%
N.D. 24.6% 38.1% 0.0% 0.0% 37.3%
Ohio 28.6% 25.0% 26.7% 0.6% 19.1%
Okla. 17.5% 33.3% 21.4% 2.9% 24.9%
Ore. 32.9% 0.0% 40.8% 3.4% 22.8%
Pa. 29.8% 16.9% 25.9% 4.6% 22.7%
R.I. 44.6% 16.8% 20.0% 2.2% 16.4%
S.C. 33.5% 24.1% 22.0% 2.1% 18.2%
S.D. 35.3% 40.4% 0.0% 0.8% 23.4%
Tenn. 26.8% 40.9% 1.2% 5.8% 25.3%
Tex. 40.4% 36.0% 0.0% 0.0% 23.6%
Utah 27.7% 24.3% 28.0% 3.0% 17.0%
Vt. 34.7% 13.7% 31.1% 2.1% 18.4%
Va. 42.2% 10.5% 19.4% 3.0% 24.8%
Wash. 21.5% 16.7% 24.2% 2.8% 34.8%
W.Va. 29.9% 45.4% 0.0% 0.0% 24.6%
Wis. 36.2% 18.9% 25.7% 3.7% 15.5%
Wyo. 35.5% 27.4% 0.0% 0.0% 37.1%
D.C. 32.5% 17.8% 26.3% 6.5% 16.9%

Property Taxes

Property taxes are a major source of state and local tax revenue, responsible for 31.3 percent of collections across all state and local tax jurisdictions in fiscal year 2014 (the most recent year for which data are available). This is driven almost entirely by the predominance of property taxes in the local revenue toolkit, where they are responsible for 72.5 percent of all tax revenues. Most states have abandoned, or nearly so, any reliance on statewide property taxes, which now account for a mere 1.6 percent of state tax revenue nationwide, down from 52.6 percent in 1902.[4]

This category includes both commercial and residential real estate in addition to tangible personal property taxes levied on business equipment as well as select personal property like cars and boats. Real estate taxes are typically a source of local tax revenue, while personal property taxes may fund state or local governments, or both. States have been moving away from the taxation of personal property, but for now, many such taxes remain in place.[5]

Economists tend to favor taxes on real property and improvements (land and structures), as they conform reasonably well to the benefits test. They help to pay for services tied to property ownership—local road maintenance, law enforcement and emergency services, and the like—and the value of the property is a reasonable, if imperfect, proxy for the value of those services.[6] Many economists also favor property taxes over alternative forms of taxation, like income and sales taxes, because they have a relatively limited impact on economic growth and development.[7] Whereas capital is frequently mobile, and can be shifted to lower tax jurisdictions, real property is immovable. Thus, while its value is affected by taxation, it cannot be moved due to tax costs.

Tax jurisdictions levy property taxes in a variety of ways: some impose a rate or a millage—the amount of tax per thousand dollars of value—on the fair market value of the property, while others impose it on some percentage (the assessment ratio) of the market value, yielding an assessed value. Occasionally, valuations are made on income potential or other metrics.

Some states have equalization requirements, ensuring uniformity across the state. Sometimes caps limit the degree to which one’s property taxes can rise in a given year, and sometimes rate adjustments are mandated after assessments to ensure uniformity or maintenance of revenues.[8] Abatements are often available to certain taxpayers, like veterans or senior citizens. Localities frequently offer abatements or other property tax incentives to select companies.[9] And of course, property tax rates are set by political subdivisions at a variety of levels: not only by cities and counties, but often also by school boards, fire departments, and utility commissions.

Fourteen states and the District of Columbia have no state property tax collections whatsoever, while local governments in all states include levies on property in their tax mix. Property taxes comprise more than 90 percent of local government tax collections in thirteen states, led by Maine at 98.8 percent of local revenue, and under half of local revenue in only three.[10] In New Hampshire, where property taxes are responsible for 16.8 percent of state and 98.7 percent of local tax collections, nearly two-thirds (66.1 percent) of all state and local tax revenue comes from property taxes. At the other end of the spectrum, only 11.5 percent of North Dakota’s state and local collections are derived from property taxes.

The New England states rely the most heavily on property taxes (44.6 percent of state and local tax revenue), while the Southeast—where localities frequently turn to local option sales taxes as a significant source of revenue—has the lowest property tax reliance at 26.2 percent.[11] 

Table 2. Property Taxes as a Percentage of State and Local Tax Collections by Region (FY 2014)
Region State Local Combined
New England 8.5% 97.2% 44.6%
Mideast 0.7% 65.8% 31.0%
Great Lakes 1.8% 82.8% 32.5%
Plains 0.7% 76.8% 29.0%
Southeast 2.2% 66.4% 26.2%
Southwest 2.0% 63.3% 26.5%
Rocky Mountain 4.7% 80.3% 32.3%
Far West 3.2% 70.9% 27.5%

Sales Taxes

Sales taxes are a significant source of both state and local government tax revenue. While economists generally draw sharp delineations among general sales taxes, excise taxes, and gross receipts taxes, the U.S. Census Bureau does not distinguish between taxes levied on sales and those imposed on gross receipts. Due to these data limitations, this category includes both general sales taxes and certain gross receipts taxes, though excise taxes are considered separately.

General sales taxes are levied on goods and services generally (subject to a range of exemptions), while selective sales taxes, often called excise taxes, are special taxes or rates on the sale of particular goods or services.[12] They tend to be collected on motor fuels, alcoholic beverages, amusements, insurance, tobacco products, pari-mutuels, and public utilities. Finally, a few states impose, or permit localities to impose, gross receipts taxes. These are business taxes levied on the entire receipts of a firm without deductions for compensation, costs of goods sold, or other expenses. Gross receipts taxes tend to be disfavored by economists, because the taxes fall on all stages of production, yielding “tax pyramiding,” whereby the same final transaction is exposed to taxes several times over. Imposed on gross income rather than net income (profit), such taxes also bear no relationship to a firm’s ability to pay.[13]

Washington State derives the highest proportion of state and local tax revenues from sales and gross receipts taxes at 45.4 percent of collections, due to its Business & Occupation (B&O) gross receipts tax and the absence of an individual income tax. It is followed by Tennessee at 40.9 percent and South Dakota at 40.4 percent. All three states forego a tax on wage income, though Tennessee does tax interest and dividend income.[14] (That tax, called the Hall income tax, is currently being phased out.)[15] South Dakota and Washington also forego corporate income taxes.[16]

Sales taxes were responsible for 23.3 percent of state and local tax revenue in fiscal year 2014, and tend to feature more prominently in state than in local tax collections, yielding 31.4 percent of state and 12.1 percent of local tax revenue. Forty-five states impose state sales taxes, while local sales taxes are collected in 38 states, typically through local option but occasionally as mandatory local taxes administered by the state. Alaska is unique in foregoing a state sales tax but permitting local option sales taxes.[17]

States which choose not to impose an individual income tax tend to increase reliance on the sales tax, while the states without a sales tax are more likely to look to severance taxes or miscellaneous business taxes for an outsized share of revenue rather than leaning more heavily on income taxes. Six of the ten states with the highest reliance on sales taxes forego at least one major tax, often the income tax. Consumption taxes are less harmful to growth than income taxes because they do not fall on saving, investment, or future consumption.[18]

Local governments in three states—Louisiana, Arkansas, and Oklahoma—derive more than 40 percent of their tax revenue from sales taxes. At the state level, six states rely on sales taxes for more than half their tax revenue, led by Florida (which also foregoes an individual income tax) at 60.7 percent. Texas foregoes both individual and corporate income taxes, but does impose both a sales tax and the Margin Tax, a gross receipts tax. Of the 45 states with a state sales tax, Vermont has the lowest reliance at 12.0 percent.

The Southwest leans the most heavily on sales taxes, with 36.4 percent of revenue derived from these sources, while New England turns to sales taxes the least, at 12.5 percent reliance. Local option sales tax collections are a significant source of revenue in the Southwest and Southeast, but play a negligible role in New England’s revenue picture.

Table 3. Sales Taxes as a Percentage of State and Local Tax Collections by Region (FY 2014)
Region State Local Combined
New England 20.1% 0.4% 12.5%
Mideast 16.1% 6.2% 13.2%
Great Lakes 32.7% 3.5% 21.9%
Plains 34.3% 14.1% 25.9%
Southeast 34.0% 18.2% 28.0%
Southwest 42.7% 30.4% 36.4%
Rocky Mountain 24.5% 12.4% 20.7%
Far West 31.3% 11.3% 24.7%

Individual Income Taxes

Individual income taxes are the second largest source of state tax revenue, accounting for 35.9 percent of state tax collections in fiscal year 2014, but their modest role in local tax collections (4.8 percent) yields a 22.9 percent share of total state and local tax revenue.

Forty-three states tax individual income, including 41 which tax wage income. (Tennessee and New Hampshire only tax interest and dividend income.) At the local level, however, individual income taxes are significantly less common.

The U.S. Census Bureau reports individual income tax collections by local governments in fourteen states and the District of Columbia. Several other states can be argued to feature local income taxes or a near equivalent—for instance, several West Virginia municipalities impose wage taxes of $2 or $3 per week[19]—but this analysis is concerned only with those states where localities report individual income tax collections to the Census Bureau.

Of these, localities in three states and the District of Columbia rely on income taxes for more than 20 percent of their revenue, led by Maryland’s local governments at 32.7 percent,[20] while municipal governments in six states with local income taxes generate less than 4 percent of their revenue that way. Most states do not permit localities to levy their own income taxes.

Oregon, which foregoes a sales tax, relies the most heavily on state individual income tax collections (68.7 percent), while among states which tax wage income, North Dakota has the lowest income tax reliance at 8.1 percent following cuts made while the state was flush with oil revenue.[21] Of states imposing all the major tax types, Virginia has the highest individual income tax reliance at 57.4 percent. Total combined state and local reliance in states that tax wage income ranges from 1.6 percent in North Dakota to 40.8 percent in Oregon.

Income taxes discourage growth more per unit of tax revenue than do consumption taxes because they discourage savings and labor force participation.[22] In 2014, states which forego an individual income tax saw a net gain of nearly 113,000 taxpayers and $17.9 billion in GDP inflow, while states which impose all major taxes experienced a net out-migration of 128,000 and an outflow of $12.8 billion.[23] Seven of the nine states that forego a wage income tax grew faster than the national average during the last Census period, and the other two experienced the fastest growth in their regions.[24] Traditional arguments in favor of individual income taxation tend to focus less on state product and more on progressivity and revenue diversification, though consumption taxes are less volatile than taxes on income.

The Mideast and Great Lakes states turn most strongly to individual income taxes, with combined state and local reliance of 28.2 and 24.5 percent respectively, while the Southwest, where income taxes are only responsible for 13.1 percent of revenue, looks to them the least. Regional variations are far more pronounced at the local level than they are at the state level, with all regions but the Southwest and Far West clustering between 30 and 35 percent state reliance.

Table 4. Individual Income Taxes as a Percentage of State and Local Tax Collections by Region (FY 2014)
Region State Local Combined
New England 33.6% 0.0% 20.9%
Mideast 33.6% 15.8% 28.2%
Great Lakes 35.0% 7.9% 24.5%
Plains 30.5% 0.8% 18.9%
Southeast 30.9% 2.3% 20.2%
Southwest 20.2% 0.0% 13.1%
Rocky Mountain 34.1% 0.0% 20.9%
Far West 24.5% 0.0% 15.8%

Corporate Income Taxes

Although they garner a good deal of attention, corporate income taxes contribute relatively little to state and local government coffers, and their revenue tends to be highly volatile. Corporate income taxes are responsible for a mere 3.7 percent of combined state and local tax collections, which consists of 5.4 percent of state revenue and 1.3 percent of local revenue.

Forty-five states tax corporate income. Of the five which forego a corporate income tax, all but one (Wyoming) imposes a gross receipts tax. New Hampshire has the highest reliance on corporate income taxation, at 23.7 percent, though this category includes not only the state’s corporate income tax but also its unique value-added tax, which is essentially a consumption tax. Alaska follows at 12.1 percent, and state reliance is under 10 percent in all but four states.

Localities in seven states impose municipal corporate income taxes, led by New York, where corporate income taxes account for 7.5 percent of local revenue. New York is a significant outlier, both in that—alone among states—localities (chiefly New York City) rely more heavily on the corporate income tax than the state itself does, and in that no other state’s localities lean on the corporate income tax for more than 3 percent of revenue.

Corporate income taxes are among the most economically disadvantageous revenue options, as they discourage the sort of activities which are most significant for growth, like investment in capital and productivity improvements.[25] States also tend to carve out their corporate income tax base with tax incentives, undermining tax neutrality and raising tax costs for unincentivized businesses.[26]

Corporate income taxes are the most prominent in the Mideast region, where they account for 5.3 percent of combined state and local collections, but they are responsible for the greatest share of state revenue in the New England states, where local governments do not have the power to impose corporate income taxes. The Southwest demonstrates the lowest reliance, at a combined 2.0 percent.

Table 5. Corporate Income Taxes as a Percentage of State and Local Tax Collections by Region (FY 2014)
Region State Local Combined
New England 8.1% 0.0% 4.2%
Mideast 5.8% 2.7% 5.3%
Great Lakes 5.2% 0.3% 3.3%
Plains 4.3% 0.1% 2.8%
Southeast 5.4% 0.2% 3.5%
Southwest 3.1% 0.0% 2.0%
Rocky Mountain 4.4% 0.0% 2.7%
Far West 4.3% 0.2% 2.8%

Other Taxes

Although income (corporate and individual), property, and sales (including some gross receipts) taxes are responsible for over 80 percent of state and local tax revenue, a wide variety of other taxes fill out the remainder. Excise taxes on motor fuel, tobacco, alcohol, and other products are responsible for about half of the 18.9 percent of state and local tax revenue not accounted for by individual income, corporate income, sales, and property taxes, and are levied (to varying degrees) in all states. Unlike a general sales tax, these “selective sales taxes,” as they are sometimes called, discriminate among different kinds of transactions.

Some of the remaining sources of taxation, like severance taxes, can be highly significant sources of revenue for a select few states. In Alaska, for instance, 84.2 percent of state tax revenue (and 53.8 percent of combined state and local tax revenue) comes from other taxes, chiefly the state’s Oil and Gas Production Tax. Other tax revenue sources, like motor vehicle license fees, business licenses, inheritance and estate taxes, recordation fees, and transfer taxes, have more modest revenue implications but are relied upon by states in varying degrees.

North Dakota and Alaska, both resource-intensive states, have the greatest reliance on other forms of taxation, at 57.1 and 53.8 percent respectively, and Delaware, which has an extensive business licensing apparatus, also comes in high at 47.7 percent. Massachusetts and New Jersey have the least reliance, at 12.2 and 12.1 percent respectively. Nationally, other taxes account for 25.7 percent of state tax revenue and 9.4 percent of local tax revenue. Regionally, the highest reliance is in the resource-intensive Far West, while the lowest reliance is found in New England.

Table 6. Other Taxes as a Percentage of State and Local Tax Collections by Region (FY 2014)
Region State Local Combined
New England 29.7% 2.4% 17.8%
Mideast 43.8% 20.4% 22.3%
Great Lakes 25.4% 5.5% 17.8%
Plains 30.2% 8.2% 23.5%
Southeast 27.5% 12.8% 22.2%
Southwest 32.1% 6.3% 22.0%
Rocky Mountain 32.4% 7.3% 23.4%
Far West 36.7% 17.6% 29.3%

Competition in State Tax Structure

State tax structures vary widely. The highest-income states rely more heavily on property taxes, while the lowest-income states lean on sales and gross receipts taxes. This is significantly a product of the sales tax-heavy Southern states disproportionately falling in the bottom quintile while property tax-centric New England states can be found in the top quintile, though the effect persists even neglecting these states. Reliance on individual income taxes does not correlate strongly with a state’s average household income.

Table 7. Reliance on Major Taxes Across High- and Low-Income States (FY 2014)
State’s Quintile Property Sales PIT CIT Other
Bottom Quintile 23.0% 44.3% 20.0% 3.6% 23.5%
Second Quintile 29.9% 38.1% 21.6% 2.7% 19.5%
Third Quintile 34.2% 36.9% 18.2% 2.4% 20.8%
Fourth Quintile 30.4% 29.0% 21.2% 3.9% 27.0%
Top Quintile 35.7% 29.1% 20.7% 4.0% 21.6%

Over the years, income taxes have gained ground as a source of state and local government tax collections, sales tax collections have mostly been flat, and property tax reliance has declined precipitously. Property taxes continue to be the predominant source of revenue for local governments, but they long ago lost their cachet at the state level. Until the 1920s, property taxes yielded over 80 percent of all state and local tax revenue; today, property taxes account for less than one-third of collections (see Table 7).

These shifts have economic consequences. Some states elect to forego certain taxes, often with the intent of spurring greater economic activity. Other states impose all the major taxes, frequently with the aim of diversifying their sources of revenue. Taxes differ on revenue stability, with corporate income taxes typically among the most volatile. They differ, too, in their distributional effects, with income taxes generally seen as more progressive than sales taxes. State and local governments must weigh competing policy goals in creating their tax structures, making important decisions about neutrality, equity, and economic implications.

Each state’s tax mix encompasses both the legacies of the past and the ambitions of the present. But this means that each state’s tax code also reflects a patchwork of choices made over many decades, often yielding an overall design which is a poor reflection of policymakers’ purposes. It may be too much to ask states to adopt tax systems which look like someone designed them on purpose,[27] but a state’s tax mix reflects its underlying policy assumptions, a mirror on the implicit aims the code has taken on over the years. Sometimes it pays to have a look in the mirror.

Table 8. Sources of State Tax Collection by State (FY 2014)
Note: Collections for the District of Columbia are included under local tax collections.
State Property Tax Sales Tax Individual Income Tax Corporate Income Tax Other Taxes
U.S. Avg. 1.6% 31.4% 35.9% 5.4% 25.7%
Ala. 3.5% 25.8% 34.5% 4.4% 31.8%
Alaska 3.8% 0.0% 0.0% 12.1% 84.2%
Ariz. 6.1% 47.1% 25.8% 4.3% 16.7%
Ark. 12.1% 35.0% 29.1% 4.5% 19.3%
Calif. 1.6% 27.0% 49.2% 6.4% 15.8%
Colo. 0.0% 22.3% 48.1% 6.1% 23.5%
Conn. 0.0% 25.0% 48.8% 3.9% 22.3%
Del. 0.0% 0.0% 32.8% 8.8% 58.5%
Fla. 0.0% 60.7% 0.0% 5.8% 33.5%
Ga. 4.2% 27.5% 48.1% 5.1% 15.1%
Hawaii 0.0% 46.8% 28.9% 2.1% 22.2%
Idaho 0.0% 37.4% 36.5% 5.2% 20.9%
Ill. 0.1% 21.3% 41.7% 11.1% 25.7%
Ind. 0.0% 41.6% 29.1% 5.1% 24.2%
Iowa 0.0% 32.1% 38.7% 4.7% 24.5%
Kans. 1.1% 40.7% 34.2% 4.5% 19.5%
Ky. 5.1% 28.2% 33.8% 6.1% 26.9%
La. 0.6% 30.2% 28.4% 5.0% 35.9%
Maine 0.9% 31.0% 36.8% 4.8% 26.6%
Md. 3.8% 22.2% 41.1% 5.2% 27.7%
Mass. 0.0% 21.9% 52.5% 8.7% 16.9%
Mich. 7.6% 34.7% 31.4% 3.5% 22.7%
Minn. 3.6% 23.2% 41.4% 5.7% 26.1%
Miss. 0.3% 43.6% 22.0% 6.9% 27.1%
Mo. 0.3% 29.2% 47.7% 3.2% 19.6%
Mont. 10.1% 0.0% 40.0% 5.7% 44.2%
Nebr. 0.0% 36.1% 43.5% 6.3% 14.2%
Nev. 3.6% 53.6% 0.0% 0.0% 42.8%
N.H. 16.8% 0.0% 4.1% 23.7% 55.4%
N.J. 0.0% 29.9% 40.3% 8.0% 21.7%
N.M. 1.8% 36.5% 22.5% 3.6% 35.6%
N.Y. 0.0% 16.5% 55.8% 6.3% 21.4%
N.C. 0.0% 24.9% 44.3% 5.8% 25.0%
N.D. 0.0% 21.6% 8.1% 4.1% 66.1%
Ohio 0.0% 37.8% 31.2% 0.0% 31.0%
Okla. 0.0% 28.6% 32.5% 4.4% 34.5%
Ore. 0.2% 0.0% 68.7% 5.1% 26.0%
Pa. 0.1% 27.8% 31.6% 6.7% 33.7%
R.I. 0.1% 30.9% 36.7% 4.0% 28.3%
S.C. 0.2% 37.7% 38.3% 3.7% 20.0%
S.D. 0.0% 56.9% 0.0% 1.5% 41.6%
Tenn. 0.0% 52.4% 2.0% 10.0% 35.6%
Tex. 0.0% 58.6% 0.0% 0.0% 41.4%
Utah 0.0% 28.9% 45.8% 4.9% 20.5%
Vt. 33.3% 12.0% 22.8% 3.6% 28.4%
Va. 0.2% 18.8% 57.4% 3.9% 19.7%
Wash. 10.2% 60.5% 0.0% 0.0% 29.3%
W.Va. 0.1% 22.7% 32.9% 3.8% 40.5%
Wis. 1.0% 28.3% 41.5% 6.0% 23.2%
Wyo. 13.3% 33.8% 0.0% 0.0% 52.9%

 

Table 9. Sources of Local Tax Collection by State (FY 2014)
State Property Tax Sales Tax Individual Income Tax Corporate Income Tax Other Taxes
U.S. Avg. 72.5% 12.1% 4.8% 1.3% 9.4%
Ala. 41.9% 36.7% 1.9% 0.0% 19.5%
Alaska 83.5% 10.0% 0.0% 0.0% 6.4%
Ariz. 64.0% 28.6% 0.0% 0.0% 7.4%
Ark. 41.9% 47.3% 0.0% 0.0% 10.8%
Calif. 70.3% 15.2% 0.0% 0.0% 14.4%
Colo. 62.9% 29.4% 0.0% 0.0% 7.7%
Conn. 98.5% 0.0% 0.0% 0.0% 1.5%
Del. 81.7% 0.0% 5.9% 0.6% 11.8%
Fla. 76.7% 6.0% 0.0% 0.0% 17.3%
Ga. 65.9% 24.2% 0.0% 0.0% 9.9%
Hawaii 67.2% 10.6% 0.0% 0.0% 22.2%
Idaho 93.7% 0.0% 0.0% 0.0% 6.3%
Ill. 83.5% 5.0% 0.0% 0.0% 11.6%
Ind. 81.1% 0.0% 14.6% 0.0% 4.3%
Iowa 86.5% 5.5% 2.1% 0.0% 6.0%
Kans. 76.0% 17.1% 0.0% 0.0% 6.9%
Ky. 55.9% 0.0% 25.7% 3.0% 15.4%
La. 45.8% 47.8% 0.0% 0.0% 6.4%
Maine 98.8% 0.1% 0.0% 0.0% 1.1%
Md. 56.3% 0.0% 32.7% 0.0% 11.0%
Mass. 95.7% 0.0% 0.0% 0.0% 4.3%
Mich. 91.9% 0.0% 3.7% 0.0% 4.4%
Minn. 91.1% 3.2% 0.0% 0.0% 5.7%
Miss. 93.5% 0.0% 0.0% 0.0% 6.5%
Mo. 59.0% 23.2% 3.4% 0.7% 13.7%
Mont. 96.6% 0.0% 0.0% 0.0% 3.4%
Nebr. 77.0% 8.1% 0.0% 0.0% 15.0%
Nev. 63.4% 9.5% 0.0% 0.0% 27.1%
N.H. 98.7% 0.0% 0.0% 0.0% 1.3%
N.J. 98.0% 0.0% 0.0% 0.0% 2.0%
N.M. 56.4% 37.7% 0.0% 0.0% 5.9%
N.Y. 57.2% 16.6% 11.6% 7.5% 7.1%
N.C. 75.4% 18.6% 0.0% 0.0% 6.0%
N.D. 75.7% 18.2% 0.0% 0.0% 6.1%
Ohio 64.1% 9.1% 21.1% 1.3% 4.4%
Okla. 51.1% 42.4% 0.0% 0.0% 6.5%
Ore. 80.9% 0.0% 0.0% 0.9% 18.1%
Pa. 68.9% 2.6% 18.5% 1.8% 8.2%
R.I. 97.7% 0.0% 0.0% 0.0% 2.3%
S.C. 78.5% 5.7% 0.0% 0.0% 15.8%
S.D. 72.4% 23.2% 0.0% 0.0% 4.4%
Tenn. 64.4% 24.7% 0.0% 0.0% 10.9%
Tex. 81.7% 12.8% 0.0% 0.0% 5.5%
Utah 71.3% 17.1% 0.0% 0.0% 11.7%
Vt. 94.1% 2.2% 0.0% 0.0% 3.7%
Va. 75.3% 7.8% 0.0% 0.0% 16.8%
Wash. 60.1% 22.5% 0.0% 0.0% 17.4%
W.Va. 81.4% 0.0% 0.0% 0.0% 18.6%
Wis. 93.5% 3.5% 0.0% 0.0% 3.0%
Wyo. 77.1% 15.4% 0.0% 0.0% 7.5%
D.C. 0.0% 17.8% 0.0% 0.0% 82.2%
Table 10. Historical Sources of State and Local Tax Collections (U.S. average, select years)
Note: Due to historical data limitations, sales, excise, and gross receipts taxes are combined in this table. Excise taxes are classified as “other taxes” elsewhere in this paper.
Year Property Taxes Sales & Excise Taxes Individual Income Tax Corporate Income Tax Other Taxes
1902 82.1% 3.3% 0.0% 0.0% 14.7%
1913 82.8% 3.6% 0.0% 0.0% 13.6%
1922 82.7% 3.8% 1.1% 1.4% 11.0%
1927 77.7% 7.7% 1.1% 1.5% 11.9%
1932 72.8% 12.2% 1.2% 1.3% 12.5%
1934 68.9% 17.1% 1.4% 0.8% 11.8%
1936 61.1% 22.1% 2.3% 1.7% 12.8%
1938 58.4% 23.6% 2.9% 2.2% 13.0%
1940 56.7% 25.4% 2.9% 2.0% 13.0%
1944 52.5% 26.1% 3.9% 5.1% 12.4%
1946 49.4% 29.6% 4.2% 4.4% 12.4%
1948 45.9% 33.3% 4.1% 4.4% 12.3%
1950 46.2% 32.4% 5.0% 3.7% 12.8%
1952 44.8% 32.9% 5.2% 4.4% 12.8%
1954 45.2% 33.0% 5.1% 3.5% 13.2%
1955 45.7% 32.5% 5.3% 3.2% 13.3%
1956 44.6% 33.0% 5.8% 3.4% 13.3%
1957 44.6% 32.9% 6.1% 3.4% 13.0%
1962 45.9% 32.5% 7.3% 3.1% 11.2%
1967 42.7% 33.7% 9.6% 3.7% 10.4%
1972 39.1% 34.2% 13.9% 4.0% 8.7%
1977 35.5% 34.5% 16.6% 5.2% 8.2%
1978 34.3% 34.9% 17.1% 5.5% 8.1%
1979 31.6% 36.1% 18.0% 5.9% 8.4%
1980 30.7% 35.8% 18.8% 6.0% 8.8%
1981 30.7% 35.2% 19.0% 5.8% 9.4%
1982 30.8% 35.1% 19.0% 5.6% 9.4%
1983 31.3% 35.2% 19.4% 5.0% 9.0%
1984 30.1% 35.6% 20.3% 5.2% 8.7%
1985 29.6% 36.1% 20.1% 5.5% 8.8%
1986 29.9% 36.2% 19.9% 5.4% 8.6%
1987 29.9% 35.6% 20.7% 5.5% 8.2%
1988 30.3% 35.9% 20.3% 5.4% 8.0%
1989 30.4% 35.5% 20.9% 5.5% 7.8%
1990 31.0% 35.5% 21.1% 4.7% 7.8%
1991 32.0% 35.3% 20.8% 4.2% 7.7%
1992 32.2% 35.3% 20.7% 4.3% 7.6%
1993 31.9% 35.3% 20.7% 4.4% 7.6%
1994 31.5% 35.8% 20.6% 4.5% 7.6%
1995 30.8% 35.9% 20.9% 4.8% 7.6%
1996 30.4% 36.1% 21.3% 4.6% 7.5%
1997 30.0% 35.9% 21.8% 4.6% 7.6%
1998 29.7% 35.5% 22.7% 4.4% 7.6%
1999 29.4% 35.7% 23.2% 4.2% 7.5%
2000 28.6% 35.5% 24.3% 4.1% 7.6%
2001 28.8% 35.0% 24.8% 3.9% 7.5%
2002 30.8% 35.8% 22.4% 3.1% 7.8%
2003 31.6% 36.0% 21.2% 3.3% 7.9%
2004 31.5% 35.7% 21.3% 3.3% 8.2%
2005 30.6% 35.0% 22.1% 3.9% 8.5%
2006 30.2% 34.6% 22.3% 4.4% 8.4%
2007 30.3% 34.3% 22.6% 4.7% 8.1%
2008 30.8% 33.8% 22.9% 4.3% 8.1%
2009 33.8% 33.9% 21.2% 3.6% 7.5%
2010 34.8% 34.0% 20.5% 3.4% 7.4%
2011 33.2% 34.5% 21.2% 3.6% 7.5%
2012 32.2% 34.4% 22.2% 3.5% 7.8%
2013 31.2% 34.1% 23.3% 3.6% 7.7%
2014 31.3% 34.7% 22.9% 3.7% 7.5%
Table 11. State Regional Classifications
Region States
New England Conn., Maine, Mass., N.H., R.I., Vt.
Mideast D.C., Del., Md., N.J., N.Y., Pa.
Great Lakes Ill., Ind., Mich., Ohio, Wis.
Plains Iowa, Kans., Minn., Mo., N.D., Nebr., S.D.
Southeast Ala., Ark., Fla., Ga., Ky., La., Miss., N.C., S.C., Tenn., Va., W.Va.
Southwest Ariz., N.M., Okla., Tex.
Rocky Mountain Colo., Idaho, Mont., Utah, Wyo.
Far West

Alaska, Calif., Hawaii, Nev., Ore., Wash.

 


[1] 36 M.R.S.A. § 4303, imposed at a rate of 1.5 cents per pound of wild blueberries processed in the state or shipped out of state.

[2] Ala. Const., amend. 351, to be optionally levied at a rate of one mill, with revenues dedicated to the control of “mosquitoes, rodents and other vectors of public health and welfare significance.” At 310,296 words, the Alabama State Constitution is 44 times longer than the U.S. Constitution.

[3] U.S. Census Bureau, State and Local Government Finances (FY 2014), https://www.census.gov/govs/local/; Tax Foundation calculations. All reliance statistics in this paper are Tax Foundation calculations from fiscal year 2014 Census data.

[4] The first year for which data are available. By 1922, property taxes had slipped to 36.7 percent of total state collections, and they accounted for less than 6 percent by the end of World War II.

[5] Joyce Errecart, Ed Gerish, & Scott Drenkard, “States Moving Away From Taxes on Tangible Personal Property,” Tax Foundation Background Paper No. 63, Oct. 4, 2012, https://taxfoundation.org/states-moving-away-taxes-tangible-personal-property/.

[6] Joan Youngman, A Good Tax: Legal and Policy Issues for the Property Tax in the United States (Cambridge, MA: Lincoln Institute of Land Policy) 2016, 13-15.

[7] Jens Arnold, Bert Brys, Christopher Heady, Åsa Johansson, Cyrille Schwellnus, & Laura Vartia, “Tax Policy For Economic Recovery and Growth,” 121 Economic Journal F59-F80, 2011.

[8] Id., 91 et. seq. and 193 et seq.

[9] See generally, Tax Foundation, Location Matters: The State Tax Costs of Doing Business, 2015, https://taxfoundation.org/publications/location-matters/.

[10] Less than half of collections in the District of Columbia come from tax collections as well, but as the federal district, its tax revenues represent a hybrid of state and local taxation.

[11] Regional classifications of states follow the Bureau of Economic Activity’s classification system. See Table 9.

[12] See, e.g., Thomas Stratmann & William Bruntrager, “Excise Taxes in the States,” Mercatus Center Working Paper No. 11-27, June 2011, https://www.mercatus.org/system/files/ExciseTaxesintheStates.Stratmann.Bruntrager_0.pdf.

[13] See generally, Justin Ross, “Gross Receipts Taxes: Theory and Recent Evidence,” Tax Foundation Fiscal Fact No. 529, Oct. 6, 2016, https://taxfoundation.org/gross-receipts-taxes-theory-and-recent-evidence/.

[14] Morgan Scarboro, “State Individual Income Tax Rates and Brackets for 2017,” Tax Foundation Fiscal Fact No. 544, Mar. 9, 2017, https://taxfoundation.org/state-individual-income-tax-rates-brackets-2017/.

[15] Scott Drenkard, “Success! Tennesee to Phase out the Hall Tax,” Tax Foundation Tax Policy Blog, Apr. 22, 2016, https://taxfoundation.org/success-tennessee-phase-out-hall-tax/.

[16] Morgan Scarboro, “State Corporate Income Tax Rates and Brackets for 2017,” Tax Foundation Fiscal Fact No. 542, Feb. 27, 2017, https://taxfoundation.org/state-corporate-income-tax-rates-brackets-2017/.

[17] Jared Walczak & Scott Drenkard, “State and Local Sales Tax Rates in 2017,” Tax Foundation Fiscal Fact No. 539, Jan. 31, 2017, https://taxfoundation.org/state-and-local-sales-tax-rates-in-2017/.

[18] William McBride, “What Is the Evidence on Taxes and Growth?” Tax Foundation Special Report No. 207, Dec. 18, 2012, https://taxfoundation.org/what-evidence-taxes-and-growth/, 4.

[19] Joseph Henchman & Jason Sapia, “Local Income Taxes: City- and County-Level Income and Wage Taxes Continue to Wane,” Tax Foundation Fiscal Fact No. 280, Aug. 31, 2011, https://taxfoundation.org/local-income-taxes-city-and-county-level-income-and-wage-taxes-continue-wane/.

[20] Localities in Kentucky generate 25.7 percent of their revenue from individual income taxes, and Ohio municipalities collect 21.2 percent that way. The District of Columbia’s tax system, which includes many of the standard features of both state and local systems, derives 26.3 percent of its tax revenue from individual income taxation.

[21] Liz Malm, “North Dakota Cuts Income Taxes Again,” Tax Foundation Tax Policy Blog, Apr. 27, 2015, https://taxfoundation.org/north-dakota-cuts-income-taxes-again/. The Census Data used in this paper capture reductions through fiscal year 2014.

[22] McBride, 4.

[23] Internal Revenue Service, “Migration Data 2014-2015,” https://www.irs.gov/uac/soi-tax-stats-migration-data-2014-2015.

[24] Michael Barone, “Census: Fast Growth in States With No Income Tax,” Real Clear Politics, Dec. 23, 2010, http://www.realclearpolitics.com/articles/2010/12/23/census_fast_growth_in_states_with_no_income_tax_108332.html.

[25] McBride, 5.

[26] Jared Walczak, Scott Drenkard, & Joseph Henchman, 2017 State Business Tax Climate Index, https://taxfoundation.org/publications/state-business-tax-climate-index/, 26-27.

[27] Former Secretary of the Treasury William E. Simon, qtd., Blueprints for Basic Tax Reform, Department of the Treasury, Jan. 17, 1977, https://www.treasury.gov/resource-center/tax-policy/Documents/Report-Blueprints-1977.pdf, 2.


Source: Tax Policy – Unpacking the State and Local Tax Toolkit: Sources of State and Local Tax Collections