By: Richard Morrison | Tax Foundation

New Yorkers faced the highest state and local tax burden in the country in fiscal year 2010, while residents of Alaska can celebrate the lowest, according to a new study by the Tax Foundation.

Between those two extremes – both consistent over several years – a number of states in the middle of the pack have seen significant fluctuations.

After New York, the states with the next highest state and local burden are New Jersey, Connecticut, California, and Wisconsin.

Following Alaska up the list of states with the smallest burden are South Dakota, Tennessee, Louisiana, and Wyoming.

The biggest changes in state rankings from the previous year include Delaware (17th to 31st), Colorado (39th to 32nd), Oregon (23rd to 16th), North Dakota (30th to 35th), and Washington (33rd to 28th).

Hawaii ranks 14th overall for state and local tax burden, at 10.1%.

Other rankings for Hawaii: State Business Tax Climate Index (37); Corporate Tax (4); Individual Income Tax (41); Sales Tax (31); Unemployment Insurance Tax (30); and Property Tax (15).

The Annual State-Local Tax Burden Ranking report estimates the average total tax burden for residents of each state, including both the in-state taxes they are subject to as well as taxes they pay to other states, such as those paid by virtue of working in, traveling to, or buying products from other states.

This method takes the point of view of the individual taxpayer, counting all taxes they pay, no matter to which state they are paid.

Many other tax measures instead reflect the perspective of a state’s tax collectors, and focus only on what each state government takes in.

The nation as a whole paid 9.9% of its income in state and local taxes in 2010, the most recent year for which data is available. That percentage is consistent with the total from 2009 but down significantly from 10.3% in 1977, the earliest year for which the Tax Foundation has done such estimates.

While fluctuations in the national average have been small in recent years, burdens among the states can vary widely. New York state residents pay 12.8% of their incomes in state and local taxes while Alaskans pay only 7.0%.

“Some states are able to shift significant portions of their tax burdens to nonresidents, with Alaska being the most aggressive. The Last Frontier is able to export over 75 percent of its tax collections to residents of other states, by virtue of taxes on oil extraction,” said Tax Foundation economist Elizabeth Malm.

“Resource-rich states, such as Alaska and Wyoming, are only the most dramatic examples of tax exporting. Major tourist destinations like Nevada and Florida are able to lower residents’ burden by taxing tourists, who are often nonresidents,” Malm said. “Nationwide, over a quarter of all state and local taxes are collected from nonresidents.”

Key Findings

* Since 2000, state and local burdens have increased from 9.3 percent to 9.9 percent. During the 2010 fiscal year, however, burdens remained fairly stable, only decreasing slightly from their 2009 levels.

* In 2010, the residents of New York, New Jersey, and Connecticut paid the highest state-local tax burdens in the nation. These are the only three states where resident taxpayers forego over 12 percent of income in state and local taxes.

* Residents of Alaska, who have consistently been the least taxed state for nearly three decades, again paid the lowest percentage of income in 2010 at just 7.0 percent. The next lowest-taxed states were South Dakota, Tennessee, and Louisiana.

* State-local tax burdens are very close to one another and slight changes in taxes or income can translate to seemingly dramatic shifts in rank. For example, the 20 mid-ranked states, ranging from Oregon (16th) to North Dakota (35th) only differ in burden by just over one percent.

While some studies aim to tally the total revenues collected from state and local governments, this study moves the focus from the tax collector to the taxpayer by focusing on tax burdens.

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