August 27, 2010
No. 242
FISCAL
FACT
Where Do State and Local Governments
Get Their Tax Revenue?
By Ryan Forster and Kail Padgitt
Introduction
Newly released Census data show how different the 50 states’ fiscal systems are. Their reliance on
various sources of tax revenue differs widely because they have different endowed resources and
policy priorities. These differences are reflected in state-local
tax collections no matter how large or small a fraction of the
States’ reliance on various
residents’ income state and local governments have decided to
sources of tax revenue differs
take in taxes.
widely because they have
different endowed resources
and policy priorities.
States heavily endowed with valuable natural resources, such
as Alaska and Wyoming, will usually exploit those tax revenue
sources, which they can do without much fear of driving the
activity out of state, given that those natural resources are
largely immobile. States with more tourism like Nevada and Florida rely more heavily on sales taxes
so that they can forgo taxing income. A calculated decision by a state to concentrate taxation in a few
sources is a plus for the state’s taxpayers, significantly lowering the administrative burden for
government and taxpayers and making the state tax climate conducive to economic growth. Of
course, that means relying more heavily on the remaining tax sources for revenue.
Tables 1-4 are “top ten” tables, highlighting the states that rely heavily on each of four major
categories: property taxes, individual income taxes, general and selective sales taxes,1 and licenses
and other taxes.2 The data are the latest available for states and localities, fiscal year 2008, which
stretched from July 1, 2007, to June 30, 2008. Combined state-local data is best for interstate
comparison because what some states accomplish with local taxes is accomplished in other states
with state-level taxes. In particular, several states have converted traditionally local property taxes
that fund public schools into state-level taxes in response to court decisions.
1
The major selective sales taxes are levied on motor fuel, tobacco, insurance premiums, public utilities (power, telephone
service, etc.), amusements and alcoholic beverages.
2
Major fees are imposed on motor vehicle licenses, business or corporation licenses, and hunting or fishing licenses.
Major tax sources are severance taxes (natural resources), stock transfer taxes, and estate/gift taxes.
Ryan Forster is Adjunct Scholar and Kail Padgitt, Ph.D., Staff Economist at the Tax Foundation.
Fiscal Fact No. 242: State-Local Revenue by Source
August 27, 2010
New Hampshire is an outlier on property tax dependence (see Table 1) because it is the only state
with neither a wage tax nor a state or local general sales tax. In addition, New Hampshire has no
substantial mineral resources that would generate severance tax revenue. Florida and Texas are also
more reliant on property taxes because they have chosen not to tax personal income. All of the other
states especially dependent on property taxes are in the northeast and Midwest.
Table 1
In Which States Do Governments Rely Most on Property Taxes?
Fiscal Year 2008
State
New Hampshire
Rhode Island
New Jersey
Florida
Vermont
Texas
Michigan
Illinois
Wisconsin
Connecticut
Fraction of Tax Revenue Coming from
Property Taxes
61.6%
42.3%
42.2%
41.3%
40.1%
38.8%
37.5%
36.8%
36.2%
36.0%
Note: Includes residential and commercial real estate (mostly local revenue) as well as personal
property taxes on cars, boats, etc. (mostly state revenue).
Source: Tax Foundation calculations based on data from Census Bureau’s government finance
data for state and local governments during fiscal year 2008.
Six states derive more than half their state-local revenue from general and selective sales taxes (see
Table 2). Tennessee, Nevada and South Dakota rank 1, 2, 3 and use the revenue to forgo wage taxes.
Table 2
In Which States Do Governments Rely Most on Sales Taxes?
Fiscal Year 2008
State
Tennessee
Nevada
South Dakota
Louisiana
Hawaii
Arkansas
Arizona
Mississippi
Florida
Alabama
Fraction of Tax Revenue from
General and Selective Sales Taxes
57.9%
55.7%
54.3%
52.9%
51.5%
51.4%
48.3%
47.0%
46.9%
46.8%
Note: The major selective sales taxes are levied on motor fuel, tobacco, insurance premiums,
public utilities (power, telephone service, etc.), amusements and alcoholic beverages.
Source: Tax Foundation calculations based on Census Bureau’s government finance data for
state and local governments during fiscal year 2008.
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Fiscal Fact No. 242: State-Local Revenue by Source
August 26, 2010
Marylanders pay the highest average local income taxes in the country, making the state more
dependent than any other on personal income taxes (see Table 3). Oregon is the next most dependent
because it imposes no general sales taxes at the state or local level.
Table 3
In Which States Do Governments Rely Most on Personal Income Taxes?
Fiscal Year 2008
State
Maryland
Oregon
Massachusetts
New York
North Carolina
Connecticut
Kentucky
Minnesota
Virginia
Ohio
Fraction of Tax Revenue from Personal Income Taxes
40.4%
39.7%
36.8%
33.6%
33.1%
32.5%
32.0%
31.5%
30.9%
30.0%
Note: States and localities generally lump wages, dividends, interest and capital gains together
when applying their individual income taxes.
Source: Tax Foundation calculations based on data from Census Bureau’s government finance
data for state and local governments during fiscal year 2008.
Most of the states heavily dependent on license revenue and other taxes are generating severance tax
revenue from mining activity (see Table 4). Timber in Oregon, coal in Wyoming, oil in Alaska,
Texas and Oklahoma: these are revenue sources most states do not have. Delaware derives much
revenue from corporation licenses, and Nevada depends on gambling taxes.
Table 4
In Which States Do Governments Rely Most on Licenses and Other Taxes?
Fiscal Year 2008
State
Fraction of Tax Revenue Coming from
Licenses & Other Taxes
Alaska
Delaware
North Dakota
Wyoming
Montana
New Mexico
Oklahoma
Texas
Nevada
Oregon
73.1%
33.5%
30.7%
28.6%
20.1%
19.0%
18.8%
14.3%
13.9%
13.2%
Note: Licenses include taxes imposed on motor vehicle licenses, business or corporation licenses,
and hunting or fishing licenses. Other taxes include severance taxes (natural resources), stock
transfer taxes, and estate/gift taxes.
Source: Tax Foundation calculations based on data from Census Bureau’s government finance data
for state and local governments during fiscal year 2008.
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Fiscal Fact No. 242: State-Local Revenue by Source
August 26, 2010
Nationwide, states and localities are most dependent on property taxes, collecting over 30 percent of
their total tax revenue from that source (see Table 5). In fiscal year 2008, states and localities were, as
a group, equally dependent on sales and income taxes. Each provided 22.9 percent of total revenue.
Licenses and other taxes provided 8.2 percent of total state and local revenue, and corporate income
tax revenue provided 4.3 percent.
Table 5
State and Local Tax Revenue by Major Source as a Percentage of Total Revenue
Fiscal Year 2008
Property
Tax
United States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
30.8%
16.4%
11.0%
29.2%
15.5%
28.4%
31.2%
36.0%
16.3%
41.3%
30.4%
18.6%
23.9%
36.8%
30.2%
32.2%
31.0%
19.6%
15.8%
36.4%
23.9%
34.3%
37.5%
26.8%
25.0%
27.6%
34.1%
33.1%
30.4%
61.6%
42.2%
14.5%
28.3%
23.7%
23.3%
29.1%
17.2%
Sales Tax
General
Selective
Sales
Sales
22.9%
29.5%
2.2%
39.6%
39.5%
22.1%
26.8%
15.3%
0.0%
31.2%
29.1%
38.9%
27.3%
16.1%
25.0%
21.1%
25.8%
20.3%
39.6%
17.9%
13.6%
12.1%
21.8%
18.9%
34.0%
25.4%
0.0%
25.0%
31.9%
0.0%
16.6%
35.7%
16.7%
21.8%
19.6%
20.4%
29.3%
10.8%
17.3%
3.6%
8.7%
11.9%
6.7%
7.8%
9.8%
13.2%
15.8%
8.6%
12.6%
8.6%
17.2%
12.0%
11.2%
8.7%
16.8%
13.3%
10.9%
11.1%
6.3%
10.6%
12.3%
13.0%
11.2%
15.9%
8.1%
23.9%
16.0%
6.9%
10.5%
7.9%
11.8%
11.3%
11.1%
9.1%
4
Individual
Income Tax
22.9%
22.7%
0.0%
14.8%
24.9%
30.0%
25.8%
32.5%
28.7%
0.0%
26.3%
22.9%
29.1%
17.8%
23.5%
25.4%
24.8%
32.0%
17.7%
26.3%
40.4%
36.8%
20.3%
31.5%
16.8%
27.5%
25.2%
23.0%
0.0%
2.4%
23.4%
15.7%
33.6%
33.1%
10.0%
30.0%
22.6%
Corporate
Income
Tax
4.3%
3.7%
10.1%
3.4%
3.6%
6.4%
2.6%
2.6%
8.3%
3.0%
2.8%
1.6%
3.9%
5.4%
4.0%
3.0%
4.4%
4.6%
3.9%
3.1%
2.7%
6.4%
4.7%
4.2%
4.2%
1.9%
4.7%
3.1%
0.0%
12.4%
5.2%
4.6%
8.2%
3.6%
5.1%
1.9%
2.9%
Licenses
and Other
Taxes
8.2%
10.3%
73.1%
4.3%
4.4%
6.5%
5.8%
3.8%
33.5%
8.7%
2.9%
5.4%
7.2%
6.6%
5.3%
7.1%
5.3%
6.6%
9.7%
5.4%
8.4%
4.2%
5.0%
6.3%
7.0%
6.3%
20.1%
7.7%
13.9%
7.7%
5.6%
19.0%
5.5%
6.0%
30.7%
7.5%
18.8%
Fiscal Fact No. 242: State-Local Revenue by Source
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Dist. of Columbia
34.0%
28.7%
42.3%
32.7%
34.3%
24.6%
38.8%
23.7%
40.1%
32.3%
27.3%
19.3%
36.2%
34.1%
32.0%
0.0%
17.0%
17.4%
24.1%
40.1%
46.3%
31.3%
27.9%
11.7%
14.5%
48.0%
17.3%
18.7%
32.9%
16.6%
8.8%
12.4%
11.2%
10.8%
14.3%
11.6%
15.5%
10.4%
17.8%
11.7%
14.6%
19.8%
8.7%
4.4%
9.1%
August 26, 2010
39.7%
26.5%
22.4%
21.8%
0.0%
1.5%
0.0%
27.7%
21.2%
30.9%
0.0%
23.6%
27.2%
0.0%
25.1%
4.3%
4.1%
3.0%
2.4%
2.8%
5.3%
0.0%
4.2%
2.9%
2.4%
0.0%
8.4%
3.5%
0.0%
7.8%
13.2%
11.3%
3.6%
8.3%
8.4%
10.7%
14.3%
6.2%
6.3%
8.1%
10.0%
11.7%
5.5%
28.6%
9.4%
Notes: Property tax includes residential and commercial real estate (mostly local revenue) as well as personal property taxes
on cars, boats, etc. (mostly state revenue). The major selective sales taxes are levied on motor fuel, tobacco, insurance
premiums, public utilities (power, telephone service, etc.), amusements and alcoholic beverages. State and local governments
generally lump wages, dividends, interest and capital gains together when applying their individual income taxes. In license
category, taxes are imposed on motor vehicle licenses, business or corporation licenses, and hunting or fishing licenses. In
category of other taxes, major revenue sources are severance taxes (natural resources), stock transfer taxes and estate/gift
taxes.
Source: Tax Foundation calculations based on data from Census Bureau’s government finance data for state and local
governments during fiscal year 2008.
© Tax Foundation
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529 14th Street, N.W., Suite 420
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www.TaxFoundation.org
About the Tax Foundation
The Tax Foundation is a 501(c)(3) non-partisan, non-profit research institution founded in 1937 to
educate taxpayers on tax policy. Based in Washington, D.C., the Foundation’s economic and policy
analysis is guided by the principles of sound tax policy: simplicity, neutrality, transparency, and
stability.
About the Center for State Fiscal Policy at the Tax Foundation
The Tax Foundation’s Center for State Fiscal Policy produces timely, high-quality, and user-friendly
data and analysis for elected officials, national groups, state-based groups, grassroots activists, the
media, business groups, students, and the public, thereby shaping the state policy debate toward
simple, neutral, transparent, stable, and pro-growth tax policies.
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