Stateline Story

Is Your State Tax-Friendly?

  • April 28, 2005
  • By Kathleen Murphy

Residents of Hawaii, Wyoming and Connecticut shoulder the heaviest state tax burdens in the nation.

The least state taxes per person are paid by those living in Texas, South Dakota or Colorado, U.S. Census figures for 2004 show.

Hawaii topped the list with taxes averaging $3,048 per person, more than double the per-capita rate in last-place Texas, which collected $1,367 for every man, woman and child.

The Census Bureau's annual report, in which tax revenue is divided by a state's population, showed the first- and last-place rankings for 2004 remained the same as in 2003. However, Wyoming moved to No. 2 in the countryfrom No. 7 in 2003, and Minnesota dropped to No. 4 from No. 2. A few states had sizable shifts. Kentucky's tax load lessened to 21st in the country, from 15th a year earlier. Reflecting greater tax loads, Illinois jumped up six states to rank No. 24, and Alaska moved up to No. 25 from No. 32.

Click here for a state-by-state comparison of tax collections.

Because the Census numbers don't include tax levies by local governments, which often pick up certain state services, economists say a better measure of tax burdens nationwide is a snapshot of both state and local tax collections. The main reason Hawaii ranked No. 1 in the Census report is that public school education, covered largely by local government in other states, is strictly a state service.

All states collected more tax revenues last year, up 8.1 percent from 2003 for a total of $593 billion in 2004, the report showed. The last time all states showed increases in total tax revenue over a prior year was 2000. The lowest totals were in Alaska, North Dakota and South Dakota, and the most tax revenues were collected in the populous states of California, New York and Florida.

The tax burden is important because it helps determine a state's business climate, carves a hole into taxpayers' wallets and influences individual decisions on where to live. The tax burden weighs so heavily in some states that people have called the moving van to escape to a lower-tax state, according to a 2004 report by the Goldwater Institute, an Arizona nonprofit educational foundation.

Using Census data on state tax collections and state-to-state migration, the Goldwater study found tax burdens influenced millions of Americans to relocate to other states during the late 1990s. Ten states with the lowest tax burdens (Alaska, New Hampshire, Delaware, Tennessee, Alabama, Texas, Florida, South Dakota, Nevada, and Colorado) enjoyed a net gain of more than 1.3 million residents resulting from across-state migration, the report said.

An April report by the Tax Foundation, an organization that compiles rankings of tax burdens, showed Maine residents with the nation's highest state and local tax burden, 13 percent of income, while Alaska enjoyed the lowest, 6.4 percent. But the Center on Budget and Policy Priorities, a tax-policy think tank, said the foundation's rankings are flawed because they are based on estimates of state and local tax revenue, not actual collections, and overstate residents' tax burdens.