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Tuesday, March 18, 2014

Tax comparisons among states

It is not easy to compare tax among states for many reasons. For example, a state might have a low income tax rate, but not allow many deductions relative to other states. Thus, the tax base is relatively high among states, but the rate relatively low among states. John Kiernan offers an analysis in "Best & Worst States to be a Taxpayer" (see article link and map below).  Not surprising, states without an income tax come in at the top four - Wyoming, Alaska, Nevada and Florida. Three of these states have relatively small population which also means the state likely has less need of tax collections. Some states, rich in natural resources, can generate tax collections from severance taxes.

Another challenge in comparing taxes among states is estimating how much taxes individuals pay indirectly. For example, if oil companies pay severance taxes for extracting oil in that state, that tax is built into prices and passed along to customers (some is also likely paid by investors and employees).

John has his methodology laid out in the article - it's a nice job.  And there are a few tax tips, including one from me - all timely for the height of tax season!

What do you think about comparing taxes among the states?

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