Report Shows States’ Revenue Sources

Oregon, more than any other state, relies on its residents’ income tax payments for revenue, while its northern neighbor, Washington, depends more heavily than any other state on sales taxes, according to a new 50-state analysis of state finances.

The analysis by the nonpartisan Tax Foundation uses newly released U.S. Census Bureau data about state and local government finances in fiscal year 2007 (the latest year for which statistics are available) to break down each state’s tax revenue sources and group states by which taxes they rely on most. The report combines state and local taxes for the sake of comparison because “what some states accomplish with local taxes is accomplished in other states with state-level taxes.”

States that rely too heavily on one tax are vulnerable to revenue fluctuations that can be especially harmful during recessions. In Oregon, for instance, where individual income taxes account for 44.1 percent of total government tax revenue, lawmakers this year were slammed by a huge revenue decline as employment – and personal income – decreased. That has resulted in major spending cuts and is forcing some school districts to resort to four-day weeks.

Alaska, which has no statewide sales or income tax but relies heavily on natural resource taxes, also has seen a sharp revenue decline as oil prices have fallen. According to the Tax Foundation, Alaska draws a nation-high 52.6 percent of its state and local revenue from a group of taxes that includes severance taxes on natural resources, stock transfer taxes, estate taxes and fees for hunting, fishing and driver’s licenses. Other states that rely heavily on this category of taxes include Delaware (34.1 percent), Wyoming (30.1 percent), North Dakota (20.7 percent) and Montana (18.8 percent).

Besides Oregon, Maryland (39.7 percent), Massachusetts (35.6 percent), North Carolina (32.7 percent) and New York (31.8 percent) are the other states that are most reliant on individual income taxes.

Sales taxes bring in 62 percent of state and local revenue in Washington state, more than in Nevada (58.2 percent), Tennessee (56.8 percent), South Dakota (54.1 percent) and Arkansas (53.2 percent). The sales taxes counted by the report include general sales taxes as well as “selective” taxes on products such as gasoline and cigarettes.

Property taxes, meanwhile, bring in 61.3 percent of New Hampshire’s combined state and local revenue, far more than in the next four states that rely most on property taxes: Vermont (42.1 percent), New Jersey (41.7 percent), Texas (41.6 percent) and Rhode Island (41.1 percent).

Nationally, sales taxes account for 34.4 percent of state and local tax revenue – 23.5 percent from taxes on gasoline, cigarettes and other targeted products and services, and 10.9 percent from general sales taxes. Property taxes account for 30.1 percent, and individual income taxes account for 22.6 percent.

See Related Stories:
Weekly wrap: Tax panels focus on states’ long-term fiscal health (9/25/2009)
States forgive penalties, reap late taxes (9/17/2009)
State tax hikes take aim at top earners (9/1/2009)