The new limit from the Tax Cut and Jobs Creation Act of 2017 places a renewed focus on State and Local Income Taxes, given the $10,000 limit on combined deductibility on State and Local Income Taxes, Property Taxes and Retail Sales Tax on individual’s Federal income tax filings. While State and Local Income Taxes are material in many states, in seven they are non-existent.
Do not think, however, that nonexistent State and Local Income Taxes correlate to low property and retail sales taxes because that is not always the case. The following table shows the sources of taxes for state and local governments:
23.5 Percent State and Local Income Taxes
31.1 Percent Property Taxes
23.5 Percent General Sales Taxes
So where are State and Local Income Taxes the most aggressive and where are they non-existent? To answer that, the Tax Foundation examined the U.S. Census Bureau’s data and calculated the average per-capita State and Local Taxes paid in fiscal year 2015, including all 50-states and the District of Columbia.
The next table shows the states with the lowest per-capita State and Local Income Taxes. New Hampshire and Tennessee tax investment income (a variant of an income tax), with Tennessee’s tax in the process of being fully phased out by 2021.
Be aware that these are per capita taxes, or per individual. As important as the tax amount for some states is the average household size. California, for example, has an average household size of 2.97 people, which at a $1,991 per capita average State and Local Tax collections equals $5,913 per household.
To view the average household size by state for 2016 click https://www.statista.com/statistics/242265/average-size-of-us-households-by-state/
The following table shows the average per-capita State and Local Income Taxes, sorted both alphabetically and by tax burden.
To read the entire study and report by the Tax Foundation click https://taxfoundation.org/state-local-income-tax-collections-per-capita-2018/?utm_source=Tax+Foundation+Newsletters&utm_campaign=df3aa1987b-EMAIL_CAMPAIGN_2018_05_30_06_38&utm_medium=email&utm_term=0_8387957ec9-df3aa1987b-427662773&mc_cid=df3aa1987b&mc_eid=c79ab314e3
No doubt the new $10,000 deductibility limit will see an out-flow of people from some states and gains in others. The purpose of limiting tax deductions from Federal income tax flings was to make certain that people in every state earning the same income pay the same amount of federal income taxes.