The Tax Foundation recently released a study into state and local tax burdens. To determine the percentage of tax burden by state, they took the total state and local taxes paid by the state’s residents and divided that number by the state’s share of net national product. The result is a map that shows the relative burden of state and local taxes across all 50 states, demonstrating just how much the tax burden varies across the nation.
By the Tax Foundation
When it comes to state and local taxes, vendors and consumers recognize that tax policy differs across the nation, creating inequities. The Tax Foundation recently released a study highlighting those differences. The results demonstrate just how inequitable state and local tax policy can be.
To determine the percentage of tax burden by state, the Tax Foundation took the total state and local taxes paid by the state’s residents and divided that number by the state’s share of net national product. The results are telling in just how much the tax burden varies across the nation.
Among the results, the study found that the year 2022 saw particularly high state and local tax burdens at an estimated 11.2% of national product. In general, the years 2020, 2021, and 2022 saw higher tax burdens than any year since 1978.
Other key findings of the study include:
- States facing the highest burden are New York (15.9%), Connecticut (15.4%), and Hawaii (14.9%)
- States facing the lowest burden are Alaska (4.6%), Wyoming (7.5%), and Tennessee (7.6%)
- States captured about 20% of their revenue from nonresidents
When conducting business, consider how these burdens impact your business strategy before you expand so you have time to plan your tax strategy to reduce compliance costs and risks. Consider focusing your target market expansion to avoid exorbitant state and local tax costs.
Another tax strategy is to consider the cost of agnostic hiring practices. The cost of compliance for each individual hire can between $2 and $5 in each state, costs that can be lowered when spread out over more employees.
The more hires in one state, the lower the average cost of compliance, while hiring one-offs in a state raises the cost of compliance. Costs can include secretary of state filings, business licenses, sales tax administration, additional tax form filings, annual reports, payroll reporting, income tax reporting, and unclaimed property management.
For more guidance on how to tax plan ahead and reduce costs and risks, reach out to the tax professionals at taxops.com.
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