MAJOR STATE TAX CHANGES ENACTED IN 1961
An Informational Paper
THE ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS
WASHINGTON 25, D . C . :
February 1962
MAJOR STATE TAX CHANGES ENACTED I N 1961
S t a t e t a x e s y i e l d e d $19 b i l l i o n i n t h e f i s c a l y e a r 1961, a b o u t
$1 b i l l i o n , o r 5.4 p e r c e n t more t h a n i n t h e p r e v i o u s y e a r . On t h e b a s i s
of 1961 l e g i s l a t i v e a c t i o n , a similar i n c r e a s e can b e expected f o r f i s c a l
1962. General s a l e s t a x e s continued t o be t h e l a r g e s t s i n g l e s o u r c e o f
S t a t e t a x revenue, followed by motor f u e l and i n d i v i d u a l income t a x e s .
S t a t e t a x c o l l e c t i o n d a t a f o r 1961 a r e summarized i n Table I .
S i n c e a f a r g r e a t e r number of l e g i s l a t i v e s e s s i o n s a r e h e l d i n
odd t h a n i n even y e a r s , and much of t h e l e g i s l a t i o n i s n o t f i n a l l y e n a c t e d
u n t i l l a t e i n t h e s e s s i o n s , t h e impact of l e g i s l a t i v e t a x changes i s n o t
g e n e r a l l y e v i d e n t u n t i l t h e following (even) f i s c a l y e a r . Thus, a
p a r t i c u l a r l y heavy volume of tax l e g i s l a t i o n i n 1959 c o n t r i b u t e d importantl y t o t h e unusually l a r g e i n c r e a s e i n S t a t e tax c o l l e c t i o n s between 1959
a r i s e of 13.7 p e r c e n t . While t a x l e g i s l a t i o n was n o t n e a r l y
and 1960
a s voluminous i n t h e 1961 s e s s i o n s a s i n 1959, a number o f s i g n i f i c a n t
revenue measures were enacted.
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Over h a l f of t h e 47 S t a t e l e g i s l a t u r e s meeting i n r e g u l a r s e s s i o n
during 1961 adopted measures i n c r e a s i n g S t a t e t a x revenue. These t a x
l a w changes a r e e s t i m a t e d t o i n c r e a s e t a x y i e l d s by about $700 m i l l i o n
f o r f i s c a l y e a r 1962. Some changes were e f f e c t i v e l a t e i n t h e c a l e n d a r
y e a r 1961 o r e a r l y i n 1962, and t h e i r f u l l impact w i l l n o t b e f e l t u n t i l
f i s c a l y e a r 1963.
For t h e 21 S t a t e s w i t h s i g n i f i c a n t r a t e i n c r e a s e s , t o g e t h e r w i t h
t h e broadening of t a x b a s e s i n some i n s t a n c e s , t h e s e changes a l o n e w i l l
r e s u l t i n about a 10 p e r c e n t r i s e i n S t a t e t a x c o l l e c t i o n s f o r f i s c a l
1962 over 1961 y i e l d s . S e v e r a l a d d i t i o n a l S t a t e s enacted minor i n c r e a s e s
i n t h e b a s e s of p a r t i c u l a r t a x e s , b u t t h e e f f e c t on revenue i s r e l a t i v e l y
negligible.
G e n e r a l l y , 1961 S t a t e t a x l e g i s l a t i o n focused on consumer t a x e s .
New g e n e r a l s a l e s t a x e s were enacted i n Texas and Wisconsin, w h i l e a
number of S t a t e s i n c r e a s e d t h e i r r a t e s o r broadened t h e i r s a l e s t a x b a s e s .
Rate i n c r e a s e s were numerous f o r tobacco p r o d u c t s (mainly c i g a r e t t e s ) and
t o a l e s s e r e x t e n t f o r a l c o h o l i c beverages. Changes a f f e c t i n g t h e y i e l d s
of income t a x e s were made i n o n l y t e n S t a t e s . West V i r g i n i a adopted a n
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T h i s paper was p r e p a r e d by Robert K . Kinsey, of t h e C o m i s s i o n S t a f f , on
t h e b a s i s of revenue e s t i m a t e s s u p p l i e d by S t a t e f i s c a l o f f i c i a l s and
d e t a i l of S t a t e l e g i s l a t i o n r e p o r t e d i n Commerce C l e a r i n g House, S t a t e
Tax Reporter.
i n d i v i d u a l income t a x , and New J e r s e y a "commuter" n e t income t a x .
The c u r r e n t r a t e s of t h e S t a t e s ' major t a x e s a r e shown i n T a b l e 11.
Percentagewise, t h e l a r g e s t a n t i c i p a t e d i n c r e a s e i n f i s c a l
1962 t a x revenue, r e s u l t i n g from 1961 l e g i s l a t i v e enactments,
Connecticut, M i s s o u r i and Texas
about
occurred i n t h r e e S t a t e s
20 p e r c e n t i n each c a s e . Connecticut i n c r e a s e d t a x r a t e s v i r t u a l l y
"across-the-board."
I n c r e a s e s i n s e l e c t e d e x c i s e t a x e s and t h e
a d o p t i o n of income t a x withholding by M i s s o u r i w i l l r a i s e revenue i n
t h a t S t a t e s u b s t a n t i a l l y . With t h e enactment of a 2 p e r c e n t g e n e r a l
s a l e s t a x , Texas became t h e 3 6 t h S t a t e t o d e r i v e revenue from t h a t
s o u r c e . The a d o p t i o n of a broad-based, b u t s e l e c t i v e s a l e s t a x and
a n i n c r e a s e i n i n d i v i d u a l income t a x r a t e s , coupled w i t h t h e i n i t i a t i o n
of w i t h h o l d i n g , a r e expected t o r a i s e s i g n i f i c a n t l y t h e t a x y i e l d i n
Wisconsin. On a f u l l - y e a r l y b a s i s , t h e s e t a x changes may r a i s e
W i s c o n s i n ' s t a x y i e l d by a s much a s 25 p e r c e n t . T h e i r impact on f i s c a l
1962 revenues, w i l l b e s u b s t a n t i a l l y l e s s due t o t h e l a t e a c t i o n o f
t h e 1961 l e g i s l a t i v e s e s s i o n . T a b l e I11 d e s c r i b e s t h e major t a x
i n c r e a s e s t h a t were adopted by t h e 1961 l e g i s l a t u r e s .
-
-
General S a l e s Taxes
New and i n c r e a s e d g e n e r a l s a l e s t a x e s can b e expected t o add
about $300 m i l l i o n t o S t a t e revenue from t h i s s o u r c e . With t h e
a d o p t i o n of t h e g e n e r a l s a l e s t a x by Kentucky i n 1960 and by Texas i n
1961, a t r a t e s of 3 and 2 p e r c e n t , r e s p e c t i v e l y , 36 S t a t e s now u s e
t h i s revenue s o u r c e . The a c t i o n by t h e l e g i s l a t u r e s of t h e s e two
S t a t e s marks t h e f i r s t a d o p t i o n of g e n e r a l s a l e s t a x e s s i n c e t h a t of
Nevada i n 1955. I n a d d i t i o n , Wisconsin, i n a l a t e 1961 l e g i s l a t i v e
enactment, adopted a 3 p e r c e n t s e l e c t i v e r e t a i l s a l e s and u s e tax
covering a wide r a n g e of items. The major c a t e g o r i e s excluded are
c l o t h i n g , food ( o t h e r t h a n r e s t a u r a n t m e a l s ) , medical expenses, i n c l u d i n g d r u g s , and p u b l i c u t i l i t i e s ( o t h e r t h a n t e l e g r a p h and t e l e p h o n e
s e r v i c e ) . The new t a x , which i n c l u d e s i n i t s coverage consumer d u r a b l e s ,
tobacco, a l c o h o l i c beverages, admissions, and r e c r e a t i o n a l equipment,
became e f f e c t i v e on February 1, 1962.
Four S t a t e s r a i s e d t h e i r g e n e r a l s a l e s t a x r a t e s i n 1961.
Connecticut and I l l i n o i s i n c r e a s e d t h e i r r a t e s from 3 t o 3.5 p e r c e n t ;
Utah a l s o r a i s e d i t s r a t e one-half p e r c e n t , from 2 t o 2.5 p e r c e n t ;
and West V i r g i n i a e n a c t e d a temporary one p e r c e n t i n c r e a s e , from 2
t o 3 p e r c e n t , t o remain i n e f f e c t through J u n e 30, 1962, Also, l a t e
i n 1960, t h e Michigan l e g i s l a t u r e i n c r e a s e d i t s g e n e r a l s a l e s t a x r a t e
from 3 t o 4 p e r c e n t , e f f e c t i v e J a n u a r y 1, 1961. Washington made
permanent i t s 4 p e r c e n t s a l e s and u s e t a x , which had been scheduled t o
r e v e r t t o 3 1 / 3 p e r c e n t on J u l y 1, 1961, and t h e S t a t e of North
Dakota extended t h e e x p i r a t i o n d a t e of i t s s a l e s t a x by two y e a r s ,
t o J u l y 1, 1963.
A number of S t a t e s broadened t h e i r g e n e r a l s a l e s t a x bases.
The most e x t e n s i v e changes were made by North Carolina which, i n a
g e n e r a l overhauling, removed most o f t h e previous exemptions. Food,
drugs ( o t h e r than p r e s c r i p t i o n medicines), and laundry and dry
cleaning s e r v i c e s a r e now t a x a b l e , and t h e t a x r a t e on a i r p l a n e s and
motor v e h i c l e s was i n c r e a s e d from 1 t o 1.5 p e r c e n t . Twenty-seven
S t a t e s and t h e D i s t r i c t of Columbia now s u b j e c t food t o t h e g e n e r a l
s a l e s t a x . Maryland reduced i t s s a l e s t a x exemption from s a l e s
under 51 c e n t s t o t h o s e under 25 c e n t s . Kansas, i n a d d i t i o n t o i t s
e x c i s e taxes on b e e r and c i g a r e t t e s , now s u b j e c t s t h e s e items t o
t h e g e n e r a l s a l e s t a x . I l l i n o i s now a p p l i e s i t s 3.5 p e r c e n t t a x t o
p r o p e r t y s o l d i n connection w i t h t h e s a l e of a s e r v i c e , and a l s o
s u b j e c t s b u i l d i n g renovations t o t h e g e n e r a l s a l e s t a x . S a l e s of
a g r i c u l t u r a l implements a r e now t a x a b l e a t 1 p e r c e n t under t h e
New Mexico g e n e r a l s a l e s t a x . Alabama, Arkansas, F l o r i d a and Wyoming
made minor a d d i t i o n s t o t h e i r s a l e s t a x bases.
I n some i n s t a n c e s , S t a t e s a l e s t a x bases were narrowed.
C a l i f o r n i a and Ohio now exempt p r e s c r i b e d drugs and medicines, making
a t o t a l of twelve S t a t e s , p l u s t h e D i s t r i c t of Columbia, which exc l u d e t h e s e items from t h e g e n e r a l s a l e s tax.
(Prescribed drugs and
medicines a r e a l s o excluded from t h e Wisconsin s e l e c t i v e s a l e s tax.)
The Michigan u s e t a x on telephone and t e l e g r a p h s e r v i c e s , which went
i n t o e f f e c t on January 1, 1960, was allowed t o e x p i r e on June 30,
1961.
S a l e s t a x e s l e v i e d by l o c a l governments a r e now i n e f f e c t i n
twelve S t a t e s , n i n e of which a l s o have S t a t e s a l e s t a x e s . The r a t e s
of t h e s e l o c a l l y imposed s a l e s t a x e s a r e t y p i c a l l y 0.5 o r 1.0 p e r c e n t
i n t h e S t a t e s which a l s o levy a S t a t e s a l e s t a x , and range from 1 t o
3 p e r c e n t i n t h e remaining t h r e e S t a t e s which do not levy s a l e s taxes.
Since n e a r l y a l l of t h e m u n i c i p a l i t i e s and most of t h e c o u n t i e s i n
I l l i n o i s levy a 0.5 p e r c e n t s a l e s t a x , t h e o v e r a l l r a t e on t h e p r e ponderance of t a x a b l e r e t a i l s a l e s i n t h a t S t a t e i s 4 p e r c e n t . A
s i m i l a r s i t u a t i o n e x i s t s i n C a l i f o r n i a where t h e widespread u s e of a
one p e r c e n t s a l e s t a x by c o u n t i e s and m u n i c i p a l i t i e s , coupled w i t h
t h e S t a t e ' s 3 p e r c e n t t a x , produces a combined 4 p e r c e n t r a t e .
Michigan, ~ e I l h s ~ l v a n and
i a Washington, t h r e e S t a t e s i n which t h e r e a r e
no l o c a l s a l e s t a x e s , a l s o levy a 4-percent s a l e s t a x , t h e h i g h e s t i n
t h e nation.
Four c o u n t i e s comprising t h e Denver, Colorado m e t r o p o l i t a n
a r e a l e v i e d ( e f f e c t i v e January 1, 1962) a two p e r c e n t d i s t r i c t sales
t a x under 1961 S t a t e l e g i s l a t i o n a u t h o r i z i n g c o u n t i e s t o band tog e t h e r i n t o a s i n g l e c a p i t a l improvement d i s t r i c t t o levy a n areawide
s a l e s t a x n o t t o exceed 2 p e r c e n t . Thus, w i t h a S t a t e r a t e of 2
p e r c e n t , t h e combined g e n e r a l s a l e s tax i n t h e Denver m e t r o p o l i t a n
area i s a l s o 4 percent.
Motor Fuel Taxes
Higher g a s o l i n e t a x r a t e s can b e expected t o add $100 t o $150
n t h e 6 S t a t e s which enacted
m i l l i o n i n f i s c a l 1962 t o c o l l e c t i o n s i
such i n c r e a s e s i n 1961. Alaska added a n o t h e r c e n t t o i t s t a x ,
making i t s 8 cent r a t e , t h e h i g h e s t S t a t e r a t e i n t h e n a t i o n . The
t a x is scheduled, however, t o r e v e r t t o 7 c e n t s on J u l y 1, 1964.
Missouri i n c r h s e d i t s g a s o l i n e t a x from 3 t o 5 c e n t s , s u b j e c t t o
v o t e r approval of a c o n s t i t u t i o n a l amendment a u t h o r i z i n g t h e
apportionment of t h e proceeds of t h e motor f u e l t a x between t h e S t a t e
and i t s p o l i t i c a l s u b d i v i s i o n s . One c e n t rate i n c r e a s e s , from 5 t o
6 c e n t s , were passed by t h e Delaware and New J e r s e y l e g i s l a t u r e s ,
Pennsylvania replaced i t s previous combined 3 c e n t s permanent and
2 c e n t s temporary t a x on g a s o l i n e and d i e s e l f u e l by a permanent 7
c e n t s t a x , a n i n c r e a s e of 2 c e n t s p e r g a l l o n , And Washington moved
up i t s g a s o l i n e and u s e f u e l s t a x r a t e from 6.5 t o 7.5 c e n t s p e r
g a l l o n . A temporary 6 c e n t s p e r g a l l o n motor f u e l s t a x r a t e ,
scheduled t o r e v e r t t o 4 ~ was
, made permanent by Iowa.
S t a t e g a s o l i n e t a x e s now vary from 5 c e n t s i n e i g h t S t a t e s t o
8 c e n t s p e r g a l l o n i n one, w i t h t h e most cormnon r a t e of 6 c e n t s p e r
g a l l o n occurring i n n i n e t e e n S t a t e s and t h e D i s t r i c t of Columbia. A
r a t e of 7 c e n t s p e r g a l l o n i s imposed by s i x t e e n S t a t e s .
Local g a s o l i n e t a x e s a r e imposed by 375 m u n i c i p a l i t i e s and 36
c o u n t i e s i n 8 S t a t e s , most conmronly a t 1 c e n t p e r g a l l o n . I n Alabama,
where more t h a n h a l f of t h e m u n i c i p a l i t i e s and 12 of i t s c o u n t i e s levy
1 c e n t g a s o l i n e t a x e s , t h e combined S t a t e and l o c a l t a x i s a t l e a s t
8 c e n t s f o r much of t h e g a s o l i n e purchased t h e r e . Missouri permits
more than 100 m u n i c i p a l i t i e s t o levy g a s o l i n e t a x e s , and New Mexico,
about 60 m u n i c i p a l i t i e s . I n t h e l a t t e r two S t a t e s , most municipal
gasoline taxes a r e a l s o a t the 1 cent r a t e ,
Tobacco Taxes
With t h e a d d i t i o n of V i r g i n i a ' s c i g a r e t t e t a x , adopted i n 1960,
47 S t a t e s and t h e D i s t r i c t of Columbia now t a x tobacco products. Only
Colorado, North Carolina, and Oregon remain o u t s i d e of t h i s t a x
f i e l d . L e g i s l a t u r e s i n s i x t e e n S t a t e s enacted i n t o law t h i s y e a r
i n c r e a s e s i n c i g a r e t t e t a x r a t e s varying from 1 t o 4 c e n t s p e r
pack, and two S t a t e s made permanent p r e v i o u s l y temporary t a x
i n c r e a s e s . These i n c r e a s e s should r a i s e almost $100 m i l l i o n i n
a d d i t i o n a l revenue f o r t h e S t a t e s i n which they occurred. Tax
i n c r e a s e s of 1 c e n t p e r pack were l e v i e d by s i x S t a t e s , 1%c e n t s
by one, 2 c e n t s by f i v e , 3 c e n t s by t h r e e , and 4 c e n t s by one.
With t h e s e new r a t e i n c r e a s e s , S t a t e c i g a r e t t e t a x e s p e r pack of
20 c i g a r e t t e s range from 2 t o 8 c e n t s , Ten S t a t e s have a r a t e of
5 c e n t s and 12 S t a t e s have a r a t e of 6 c e n t s p e r package. The
lowest r a t e of 2 c e n t s p e r pack i s imposed by only one S t a t e and
t h e D i s t r i c t of Columbia, whereas f i v e S t a t e s impose a r a t e of 8
c e n t s p e r package of c i g a r e t t e s .
I n c o n t r a s t t o t h e s e widespread i n c r e a s e s i n c i g a r e t t e t a x e s ,
one S t a t e , Michigan, lowered i t s r a t e from 6 t o 5 c e n t s p e r pack,
The 2 c e n t s supplemental (school a i d ) c i g a r e t t e t a x was r e p e a l e d
and t h e r e g u l a r c i g a r e t t e tax r a t e i n c r e a s e d from 4 t o 5 c e n t s p e r
package. A 20 p e r c e n t e x c i s e t a x on t h e wholesale p r i c e of tobacco
products, o t h e r than c i g a r e t t e s , w a s a l s o repealed. A similar 1 5
p e r c e n t t a x on tobacco products was repealed by N e w York, and
Minnesota reduced from 20 t o 10 p e r c e n t i t s impost, The Maine t a x
on tobacco products, o t h e r than c i g a r e t t e s , which i s l e v i e d on t h e
r e t a i l p r i c e , was l i k e w i s e repealed.
The only r e p o r t e d t a x i n c r e a s e on tobacco products o t h e r than
c i g a r e t t e s was enacted by Oklahoma, where t h e r a t e s on c i g a r s and
smoking tobacco were r a i s e d . A t t h e p r e s e n t time, c i g a r s a r e taxed
by 1 5 S t a t e s a t r a t e s expressed a s a percentage of t h e c i g a r p r i c e
o r as a s p e c i f i e d amount p e r 1,000 q u a n t i t y . Smoking tobacco i s
subject t o excises i n 13 States.
I n o t h e r l e g i s l a t i v e a c t i o n a f f e c t i n g revenue y i e l d s from
tobacco products, t h e discount allowed l i c e n s e d c i g a r e t t e d e a l e r s f o r
t h e i r stamp-affixing s e r v i c e s was reduced i n s e v e r a l S t a t e s , i n c l u d i n g
Connecticut, Delaware, Maine, Missouri, Nevada, Pennsylvania,
Washington and Wisconsin. A t r e n d t o a discount r a t e of approximately
3 percent i s a p p a r e n t . Kansas, a s mentioned above, now s u b j e c t s
c i g a r e t t e s t o i t s general s a l e s tax, i n addition t o the s p e c i f i c
c i g a r e t t e t a x , and f o r b i d s c i t i e s , u n l e s s s p e c i f i c a l l y a u t h o r i z e d by
law, t o impose s a l e s o r e x c i s e t a x e s on them. S i m i l a r l y , i n l e g i s l a t i o n enacted t h i s y e a r , Maryland p r o h i b i t s l o c a l c i g a r e t t e t a x e s
(but d i s t r i b u t e s t h e proceeds from t h e a d d i t i o n a l 3-cent t a x t o i t s
c o u n t i e s ) . With t h e i n c r e a s e of ~ e v a d a ' sc i g a r e t t e t a x from 3 t o 7
c e n t s p e r pack, m u n i c i p a l i t i e s w i l l now s h a r e i n t h e proceeds,
Alcoholic Beverage Taxes
Tax r a t e s on one o r more forms of a l c o h o l i c beverages were
i n c r e a s e d by nine S t a t e s . Rate i n c r e a s e s on b e e r were enacted by
Connecticut, Idaho, Kansas, Maine, Missouri and Nevada. Alaska,
Connecticut, Kansas, Missouri, Nevada, and North Carolina r a i s e d t a x
r a t e s on d i s t i l l e d s p i r i t s . I n c r e a s e s i n wine t a x e s were imposed by
Alaska, Connecticut, Delaware, Kansas, Missouri, and Nevada. Ternpor a r y t a x r a t e i n c r e a s e s were extended o n b e e r by North Dakota, on
d i s t i l l e d s p i r i t s by Massachusetts, Minnesota, and North Dakota,
and on wine by Massachusetts and Minnesota. Michigan allowed i t s
temporary r a t e i n c r e a s e on b e e r t o e x p i r e ,
Except f o r Hawaii, a l l S t a t e s and t h e D i s t r i c t of Columbia t a x
b e e r on a gallonage b a s i s . Hawaii t a x e s a l l a l c o h o l i c beverages a t
16 p e r c e n t of t h e wholesale p r i c e . The r a t e s range from 62 c e n t s i n
Wyoming t o over $13 p e r b a r r e l i n M i s s i s s i p p i and South Carolina.
Over h a l f of t h e S t a t e s t a x b e e r a t l e s s t h a n $3 p e r b a r r e l . Gallonage t a x e s on d i s t i l l e d s p i r i t s i n t h e 32 S t a t e s using t h e l i c e n s e
system o f d i s t r i b u t i o n vary from 75 c e n t s p e r g a l l o n i n South Dakota
t o $4 p e r g a l l o n i n Alaska. A r a t e of l e s s than $2 p e r g a l l o n i s
l e v i e d i n 18 S t a t e s and t h e D i s t r i c t of Columbia. Taxes on wines i n
S t a t e s using t h e l i c e n s i n g system a r e l e s s than 30 c e n t s p e r g a l l o n
on l i g h t wines i n 19 S t a t e s , and l e s s than 50 c e n t s p e r g a l l o n o n
f o r t i f i e d wines i n 16 S t a t e s .
Other S a l e s and Gross Receipts Tayes
L e g i s l a t i o n a f f e c t i n g t h e t a x a t i o n o f i n s u r a n c e companies was
enacted i n t e n S t a t e s . Taxes on i n s u r a n c e premiums were r a i s e d i n
Connecticut, Montana, and New Mexico. Massachusetts and West V i r g i n i a
extended t h e i r temporary t a x i n c r e a s e s on i n s u r a n c e g r o s s premiums,
and Pennsylvania made permanent i t s temporary tax on t i t l e i n s u r a n c e
and t r u s t companies. I n another change, Pennsylvania widened t h e
base of i t s g r o s s premiums t a x t o i n c l u d e domestic l i f e i n s u r a n c e
companies, i n a d d i t i o n t o o u t - o f - S t a t e insurance companies. Nevada,
i n a base-broadening move, extended i t s 2 p e r c e n t g r o s s premiums t o
annuity companies doing b u s i n e s s i n t h e S t a t e , A g r o s s premiums t a x
on f o r e i g n o r a l i e n t i t l e i n s u r e r s was imposed by New York. Two
S t a t e s adopted t a x measures l e s s e n i n g t h e i r revenue y i e l d s from
i n s u r a n c e company t a x a t i o n . New Hampshire passed a law providing f o r
t h e g r a d u a l exemption of t h e a n n u i t y premiums of l i f e i n s u r a n c e
companies from t h e S t a t e ' s g r o s s premiums tax. And Vermont r e p e a l e d
i t s s p e c i a l t a x on t h e premiums of f i r e i n s u r a n c e companies.
Several a d d i t i o n a l enactments s i g n i f i c a n t l y a f f e c t e d s e l e c t i v e
s a l e s and gross r e c e i p t s t a x e s . Connecticut r a i s e d t h e gross r e c e i p t s taxes on p u b l i c u t i l i t y companies, and a l s o increased i t s t a x
r a t e s on t h e gross income of unincorporated businesses. I l l i n o i s
imposed a new 3 percent t a x on h o t e l and motel b i l l s . Vermont
increased i t s motor v e h i c l e e x c i s e t a x from 2 percent t o 3 percent,
and a l s o made permanent i t s 3 percent t a x on meals and rooms which
had been scheduled t o e x p i r e on June 30, 1961.
Income Taxes
The f i e l d of income t a x a t i o n was not given a s much a t t e n t i o n by
t h e 1961 l e g i s l a t u r e as were some of t h e o t h e r t a x a r e a s discussed
here. Nevertheless, two a d d i t i o n a l S t a t e s (West Virginia and New
Jersey) entered t h e individual income t a x a r e a , t h e r e were a number
of r a t e increases, and a f a i r amount of a t t e n t i o n was given t o t h e
question of t a x withholding. Altogether, about $100 m i l l i o n was
probably added t o the S t a t e s ' t a x c o l l e c t i o n s a s a r e s u l t of t h e 1961
i n d i v i d u a l and corporation income t a x l e g i s l a t i o n .
Individual Income Taxes
Although only seven of t h e t h i r t y - f o u r S t a t e s now taxing i n d i v i d u a l incomes passed l e g i s l a t i o n i n 1961 f o r t h e s p e c i f i c purpose of
obtaining more revenue from t h i s source, l e g i s l a t i v e a c t i v i t y i n t h i s
f i e l d w a s noteworthy. West Virginia became t h e f i r s t S t a t e t o adopt
t h e personal income t a x s i n c e 1937. (Alaska adopted i t s income t a x
i n 1949 while s t i l l a t e r r i t o r y . )
E f f e c t i v e f o r t h e t a x a b l e year
ending on o r a f t e r December 31, 1961, personal income i n West V i r g i n i a
i s taxed a t t h e r a t e of 6 percent of t h e Federal t a x on t h e amount of
Federal taxable income i d e n t i c a l w i t h West Virginia t a x a b l e income.
The l a t t e r i s defined a s Federal a d j u s t e d g r o s s income w i t h c e r t a i n
modifications. Withholding of t h e t a x began on A p r i l 1, 1961.
New Jersey enacted l e g i s l a t i o n providing f o r t h e t a x a t i o n of t h e
incomes and c a p i t a l gains of "commuters" ( i n d i v i d u a l s , e s t a t e s and
t r u s t s who r e s i d e i n New York but e a r n income i n New J e r s e y , and those
l i v i n g i n New J e r s e y b u t earning t h e i r income i n New York) . The new
t a x , which i s e f f e c t i v e f o r 1961 incomes and which terminates on
December 31, 1970, g e n e r a l l y conforms t o t h e New York personal income
t a x law with r e s p e c t t o r a t e s and provisions. I n e f f e c t , t h i s t a x
would have t r a n s f e r r e d a s u b s t a n t i a l amount of income t a x revenue (i.e.,
taxes paid by New J e r s e y r e s i d e n t s earning t h e i r incomes i n New York)
from New York t o New J e r s e y . New York, however, has r e c e n t l y enacted
l e g i s l a t i o n eliminating t a x c r e d i t s t o non-residents. As a r e s u l t ,
revenue from t h e New J e r s e y t a x w i l l b e r e s t r i c t e d t o t a x e s o n New
York r e s i d e n t s working i n New J e r s e y .
(New York r e s i d e n t s a r e
allowed c r e d i t a g a i n s t t h e New York i n d i v i d u a l income t a x f o r income
t a x e s p a i d t o o t h e r S t a t e s . ) The proceeds from t h e New J e r s e y t a x ,
a f t e r deducting a d m i n i s t r a t i o n expenses, a r e t o b e used t o a i d ' ~ e w
Jersey-New York commuter t r a n s p o r t a t i o n , and t h e c o n t i n u a t i o n of t h e
t a x i s c o n t i n g e n t upon a n annual c e r t i f i c a t i o n of New J e r s e y t r a n s p o r t a t i o n o f f i c i a l s t h a t a c r i t i c a l t r a n s p o r t a t i o n problem e x i s t s
between t h e two S t a t e s .
F i v e S t a t e s r a i s e d t h e i r individual-income t a x r a t e s . The
Alaska income t a x r a t e , f o r i n d i v i d u a l s and banks r e q u i r e d t o f i l e a
F e d e r a l income t a x r e t u r n , has been r a i s e d from 1 4 t o 1 6 p e r c e n t of
t h e t o t a l F e d e r a l tax payable on income d e r i v e d from s o u r c e s i n
Alaska. Tax r a t e s on t h e h i g h e r income b r a c k e t s have been i n c r e a s e d
i n Delaware. .Where, p r e v i o u s l y , t h e t o p r a t e i n t h a t S t a t e was 8
p e r c e n t on n e t income o v e r $8,000, t h r e e new b r a c k e t s were added,
w i t h a r a t e of 11 p e r c e n t on n e t incomes i n e x c e s s of $100,000.
Minnesota l e v i e d a n a d d i t i o n a l 1 p e r c e n t on a d j u s t e d g r o s s income up
t o $1,000 where a t a x p a y e r ' s l i a b i l i t y under t h e r e g u l a r r a t e and
s u r t a x i s l e s s than $10. However, t h i s a d d i t i o n a l r a t e cannot b e
a p p l i e d t o i n c r e a s e t h e t a x of such p e r s o n s t o more t h a n $10. Wisconsin
added a n o t h e r 1 p e r c e n t t o each o f t h e income t a x b r a c k e t s , which now
r a n g e from 2 p e r c e n t on t h e f i r s t $1,000 of t a x a b l e income t o 1 0 p e r c e n t
on a l l t a x a b l e income i n e x c e s s of $15,000. A temporary 50 p e r c e n t
i n c r e a s e i n t h e p e r s o n a l income t a x r a t e s has been e n a c t e d by t h e New
Mexico l e g i s l a t u r e . The new r a t e s , e f f e c t i v e u n t i l December 31, 1963
( a t which time they r e v e r t t o t h e i r former l e v e l ) , r a n g e from 1.5
p e r c e n t f o r incomes up t o $10,000 t o 6 p e r c e n t f o r t h o s e i n e x c e s s o f
$10,000. Massachusetts' temporary t a x r a t e i n c r e a s e , scheduled t o
e x p i r e i n February 1961, was extended through June 1963.
New York was t h e o n l y S t a t e t o lower i n d i v i d u a l income t a x e s . A
temporary 10 p e r c e n t r e d u c t i o n i n p e r s o n a l income t a x l i a b i l i t i e s f o r
t h e c a l e n d a r y e a r 1960 and f i s c a l y e a r s ending i n 1961 was provided.
There a r e no p l a n s f o r extending i t t o 1962.
S t a t e income t a x w i t h h o l d i n g h a s s p r e a d t o 6 more S t a t e s , making
a t o t a l o f 26 ( i n c l u d i n g Indiana) p l u s t h e D i s t r i c t of Columbia, t h a t
r e q u i r e employers t o w i t h h o l d income t a x e s from t h e wages and s a l a r i e s
of t h e i r employees. The added income t a x w i t h h o l d i n g S t a t e s a r e
Minnesota, M i s s o u r i , New Mexico, Oklahoma, West V i r g i n i a and Wisconsin.
(Louisiana added t h e w i t h h o l d i n g f e a t u r e i n i t s 1960 l e g i s l a t u r e s e s s i o n ,
e f f e c t i v e January 1, 1961.)
I n d i a n a i n c l u d e s g r o s s income from p e r s o n a l
s e r v i c e s under i t s g e n e r a l g r o s s r e c e i p t s t a x and s u b j e c t s "personal
s e r v i c e s " income t o w i t h h o l d i n g . I n a d d i t i o n t o t h e 26 S t a t e s , two
o t h e r s , C a l i f o r n i a and Iowa, r e q u i r e t h e w i t h h o l d i n g of income
t a x e s of n o n - r e s i d e n t s of t h e S t a t e , A s noted above, t h e New J e r s e y
income t a x which, i n e f f e c t , a p p l i e s o n l y t o n o n - r e s i d e n t s , i s a l s o
s u b j e c t t o withholding.
Intergovernmental c o o p e r a t i o n i n t h e income t a x w i t h h o l d i n g
s p h e r e a l s o o c c u r r e d i n 1961. The F e d e r a l Government, which i s empowered under P .L. 587 (enacted by Congress i n 1952) t o w i t h h o l d
from i t s employees S t a t e income t a x e s , n e g o t i a t e d w i t h h o l d i n g
agreements w i t h t h e s i x S t a t e s t h a t adopted income t a x w i t h h o l d i n g
i n 1961. A t t h e p r e s e n t time t h e F e d e r a l Government has made
agreements w i t h a l l 26 S t a t e s and t h e D i s t r i c t of Columbia t h a t
themselves p r o v i d e f o r w i t h h o l d i n g . Congressional a c t i o n t o
a u t h o r i z e t h e Treasury t o conclude s i m i l a r agreements w i t h c e r t a i n
c i t i e s has been pending f o r s e v e r a l y e a r s . I n a d d i t i o n t o F e d e r a l S t a t e c o o p e r a t i o n , New York has reached a n agreement w i t h C o n n e c t i c u t
p r o v i d i n g f o r employers i n t h e l a t t e r S t a t e t o w i t h h o l d from i t s
New Y o r k - r e s i d i n g employees income t a x e s i f such f i r m s have o f f i c e s
o r t r a n s a c t b u s i n e s s i n New York. I f t h e s e f i r m s do n o t t r a n s a c t
b u s i n e s s i n New York, they a r e p e r m i t t e d t o w i t h h o l d , a t t h e i r o p t i o n ,
and a t a minimum must supply t h e names and a d d r e s s e s of t h e i r New York
employees. I n a n o t h e r c o o p e r a t i v e a c t i o n , t h e S t a t e t r e a s u r e r of
Pennsylvania now w i t h h o l d s income t a x e s imposed by f i r s t c l a s s c i t i e s
( P h i l a d e l p h i a ) from S t a t e em'ployees working o r r e s i d i n g t h e r e .
Corporate Income Taxes
S t a t e l e g i s l a t i v e a c t i v i t y i n t h e c o r p o r a t e income t a x s p h e r e
was r e l a t i v e l y l i g h t i n 1961. T h i r t y - s i x S t a t e s c o n t i n u e t o d e r i v e
revenue from t h i s s o u r c e , w i t h t h e l a s t S t a t e a d o p t i o n of t h e t a x
b e i n g t h a t of New J e r s e y i n 1958. General i n c r e a s e s i n c o r p o r a t e
r a t e s were e n a c t e d by o n l y t h r e e S t a t e s . Connecticut r a i s e d i t s tax
r a t e from 3.75 t o 5 p e r c e n t of c o r p o r a t e income, and i n c r e a s e d t h e
minimum t a x from $20, o r 1.9 m i l l s p e r $1,000 of i n v e s t e d c a p i t a l , t o
t h e g r e a t e r o f $25 o r 2.5 m i l l s p e r $1,000 of i n v e s t e d c a p i t a l .
Minnesota extended through 1962 i t s temporary t a x o f 1 . 8 p e r c e n t , and
i n c r e a s e d b o t h t h i s t a x and i t s 4.5-percent primary t a x r a t e by a n o t h e r
1 0 p e r c e n t . And, t h e c o r p o r a t e income t a x r a t e i n New Mexico w a s
r a i s e d from 2 t o 3 p e r c e n t , e f f e c t i v e March 31, 1961, and c o n t i n u i n g
u n t i l December 31, 1963, (when i t r e v e r t s t o 2 p e r c e n t ) . Temporary
t a x r a t e s were extended through J u n e 1963 by M a s s a c h u s e t t s , i n c l u d i n g
t h e a d d i t i o n a l 3 - p e r c e n t t a x and 20-percent s u r t a x on c o r p o r a t e
incomes. A 4-percent t a x r a t e a p p l i c a b l e t o t h e incomes of domestic
b u i l d i n g and l o a n a s s o c i a t i o n s was imposed by North Dakota, b u t Alaska
exempted from i t s c o r p o r a t e income t a x n a t i o n a l banks. Oregon excluded
from i t s t a x c e r t a i n c o r p o r a t i o n s p r o v i d i n g f a c i l i t i e s f o r e l d e r l y
persons.
S t a t e c o r p o r a t e income t a x r a t e s c u r r e n t l y range from 1.75
p e r c e n t (New J e r s e y ) t o 10.23 (Minnesota), w i t h t h e r a t e of 5 p e r c e n t
t h e most f r e q u e n t . T h i r t y of t h e s e , including t h e D i s t r i c t of
Columbia, a r e f l a t r a t e s and seven a r e graduated.
Other Taxes
Aside from t h e s a l e s and income t a x enactments described above,
t h e r e was l i t t l e a d d i t i o n a l t a x l e g i s l a t i o n designed t o i n c r e a s e
S t a t e t a x revenue.
Connecticut imposed a 30 p e r c e n t s u r t a x on successions and
t h e only a c t i o n i n t h e death and g i f t t a x a r e a c a l c u l a t e d
transfers
t o i n c r e a s e s i g n i f i c a n t l y S t a t e revenue from t h a t source. South
Carolina r e p e a l e d i t s i n h e r i t a n c e and "pickup" e s t a t e t a x e s and
replaced them w i t h a new e s t a t e t a x ( s t i l l i n c l u d i n g t h e "pickuptt
f e a t u r e ) providing f o r r a t e s of 4 p e r c e n t on t h e f i r s t $40,000 of
t a x a b l e e s t a t e s , 5 p e r c e n t on t h e next $60,000, and 6 p e r c e n t on a l l
amounts above $100,000 of t a x a b l e e s t a t e s .
-
Several S t a t e s , including Alaska, North Dakota, and Washington
i n c r e a s e d t h e i r motor v e h i c l e r e g i s t r a t i o n f e e s . Connecticut repealed i t s highway u s e t a x on i n t e r s t a t e buses and r e p l a c e d i t w i t h
a "road" t a x on buses, t r u c k s , and t r a c t o r s . The new "road" t a x i s
based upon t h e amount of motor f u e l purchased o u t s i d e t h e S t a t e and
consumed on Connecticut highways, a t s i x c e n t s p e r g a l l o n ( t h e
regular S t a t e gasoline tax r a t e ) .
Indiana removed motor v e h i c l e s and mobile homes from t h e g e n e r a l
p r o p e r t y t a x and imposed a 2 p e r c e n t s p e c i a l p r o p e r t y t a x on such
v e h i c l e s i n l i e u of t h e g e n e r a l p r o p e r t y t a x . However, t h e law was
i n v a l i d a t e d by a d e c i s i o n of t h e S t a t e supreme c o u r t on January 30,
1962.
TABLE I .
--
Tax Sources
11
-
S t a t e Tax C o l l e c t i o n s , 1961
Amount
( i n millions)
P e r c e n t of
Total
Percent Increase
1960 t o 1961
S a l e s and g r o s s r e c e i p t s t a x e s :
General s a l e s and g r o s s
receipts
Motor f u e l s
Tobacco p r o d u c t s
A l c o h o l i c beverages
Insurance
Public u t i l i t i e s
Other
Income t a x e s :
Individual
Corporate
L i c e n s e taxes:
Motor v e h i c l e s
Corporate
A l c o h o l i c beverages
0th e r
Property taxes
Death and g i f t t a x e s
Other t a x e s
T o t a l tax c o l l e c t i o n s
Source: Bureau o f t h e Census, S t a t e Tax C o l l e c t i o n s i n 1961.
Data a r e
p r e l i m i n a r y f o r S t a t e f i s c a l y e a r s ending i n t h e 12-month p e r i o d J u l y 1,
1960
J u n e 30, 1961, e x c e p t t h a t f o r two S t a t e s whose 1961 f i s c a l y e a r s
c l o s e d a f t e r J u n e 30, t h e d a t a a r e f o r t h e 12-month p e r i o d ending J u n e 30,
1961.
-
TABLE 11.
--
S t a t e Tax R a t e s , S e l e c t e d Taxes, January 1962
Net Income
I n d i v i d u a l Corporate
(range of r a t e s )
State
R e t a i l Motor Fuel
S a l e s (per g a l l o n )
Cigarettes (per
s t a n d a r d pack)
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
3/
-
3
3
5
5
5
5
5
7
7
7
6
4
2.5
8
6
6
5.5
6
5
7
5
6
5
7
6
4
6
7
6
4
7
111 3
1.75
-2
---
6
7
3
2
6
6
7
6
7
8
5
1.5-11
1-6
4
1.5-5.5
2-6
2-6
3.5
5-7
--
--
--
2
3.5
--
6
6
6
7
6.5
5
5
5
3-9
--
~ a w aii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New J e r s e y
New Mexico
New York
North C a r o l i n a
North Dakota
Ohio
7/ 3
-
5
2.5
3
2
3
3
-81
-91
6.765
--
4
10.23
2-5
2
3
2
4
--
--
3.075
--
1-10.5
2-5
1-4
----
1-7
4.5
---
101 4.25
1-2 2-10
1.5-6
2-10
3-7
1-11
--
131
121 5.5
6
3-6
--
---
--
--
3
2
3
8
7
--
6
5
-
TABLE 11.
Cont'd
S t a t e Tax R a t e s , S e l e c t e d Taxes, J a n u a r y 1962
1
State
Oklahoma
Oregon
Net Income
Individual Corporate
(range of r a t e s )
1-6%
3-9.5
Pennsylvania
Rhode I s l a n d
South C a r o l i n a
South Dakota
Tennessee
Texas
Utah
Vermont
-- -2- 7
--
lo/ 6--
I
Retail
Sales
I
I
Motor F u e l C i g a r e t t e s ( p e r
( p e r g a l l o n ) s t a n d a r d pack)
4%
2%
--
6.58~
6
-7c-
6
6
5
4
3
3
7
7
7
6
6
5
2
3
2
2.5
5
5
8
--
6
7
5
6
6.5
2
6
6
-3.75
--
1-5
2-7 -5
4
5
2.5-5
5
4
7
Virginia
Washing t o n
West V i r g i n i a
Wisconsin
Wyoming
D i s t r i c t o f Columbia
-11
2/
-3/
-4 /
-5 /
-6 /
-71
-8 /
-91
10/
11/
IT/
-
13/
1
1
16/
2
S i x t e e n p e r c e n t of t a x p a y e r ' s F e d e r a l income t a x l i a b i l i t y .
E i g h t e e n p e r c e n t of t h e c o r p o r a t i o n ' s F e d e r a l income t a x l i a b i l i t y .
A 2% s u r t a x i s l e v i e d on income i n e x c e s s of $5,000 from i n t a n g i b l e
personal property.
I n Hawaii County t h e r a t e i s 8 c e n t s .
The s t a t u t o r y r a t e i s 20% of t h e w h o l e s a l e p r i c e ,
A g r o s s income ( o r t r a n s a c t i o n ) t a x on t h e g r o s s r e c e i p t s of a l l t a x p a y e r s from s o u r c e s w i t h i n t h e S t a t e .
Investment income o v e r $500 i s t a x e d a t 5%.
A n n u i t i e s a r e t a x e d a t 1.845%; i n t e r e s t and d i v i d e n d s , and c a p i t a l g a i n s
o n i n t a n g i b l e s a t 7.38%.
A 15% s u r t a x i s l e v i e d f o r y e a r s s t a r t i n g b e f o r e 1963. Also, t h e r e i s a n
a d d i t i o n a l t a x o f 1%o n t h e f i r s t $1,000 of a d j u s t e d g r o s s income where
n e t income t a x p l u s s u r t a x does n o t exceed $10,
A p p l i c a b l e o n l y t o i n t e r e s t a n d d i v i d e n d income ( e x c l u d i n g i n t e r e s t on
s a v i n g s d e p o s i t s f o r New Hampshire t a x p a y e r s )
The s t a t u t o r y r a t e i s 15% of t h e r e t a i l p r i c e .
A p p l i c a b l e o n l y t o income e a r n e d by New York r e s i d e n t s i n New J e r s e y and
by New J e r s e y r e s i d e n t s i n New York. See page 7.
A l l c o r p o r a t i o n s pay a n a d d i t i o n a l t a x on n e t worth.
P l u s a t a x of t m i l l p e r $ 1 o f a l l o c a t e d s u b s i d i a r y c a p i t a l .
S i x p e r c e n t of t a x p a y e r ' s F e d e r a l income t a x which would b e imposed on
F e d e r a l t a x a b l e income e q u a l t o West V i r g i n i a t a x a b l e income.
E f f e c t i v e Feb. 1, 1962, See page 2.
.
Source: U.S. Bureau o f t h e Census, S t a t e Tax C o l l e c t i o n s i n 1961; Advisory
Commission on I n t e r g o v e r n m e n t a l R e l a t i o n s ; Tax Overlapping i n t h e United S t a t e s 1961;
and Commerce C l e a r i n g House, S t a t e Tax R e p o r t e r .
TABLE 111.
--
Major 1961 S t a t e L e g i s l a t i v e Tax Changes
Income Taxes
I n d i v i d u a l 1 Corporate
State
Alabama
Alaska
Arkansas
Connecticut
Delaware
Florida
Idaho
I l l i n o is
Kansas
Maine
Maryland
Minnesota
Missouri
Nevada
New J e r s e y
New Mexico
North C a r o l i n a
North Dakota
Oklahoma
Pennsylvania
Rhode I s l a n d
Texas
Utah
Washington
West V i r g i n i a
Wisconsin
Wyoming
Source:
C o m e r c e C l e a r i n g House, S t a t e Tax R e p o r t e r
Code:
b = b a s e broadened; r = r a t e i n c r e a s e d ; r s = s e l e c t i v e r a t e i n c r e a s e ;
N
new t a x imposed; d = r e d u c t i o n i n d i s t r i b u t o r ' s d i s c o u n t f o r a f f i x i n g stamps; w = w i t h h o l d i n g
-