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state tax burden

State Tax Primer from A to W: Arkansas

December 30, 2008 · 14 comments

Welcome to my fourth in a series on state taxes! For information about what I’m trying to do, read my introductory bit. Next on the agenda, the bane of every elementary aged school child when it comes to spelling: Arkansas!

ARKANSAS

Population: 2,834,797 (32nd)

Capital: Little Rock

Largest City: Little Rock

Gross Domestic Product: $87 billion

GDP per capita: $27,875 (49th)

2008 election winner: John McCain

web site: http://www.state.ar.us/

Income Tax

Arkansas does collect personal income tax. Taxes are fixed according to a series of six brackets, depending on net income. For 2007, the brackets are:

    If net income is at least $0, but not more than $3,699, the tax rate is 1%;
    If net income is at least $3,700, but not more than $7,399, the tax rate is 2.5% minus $55.49;
    If net income is at least $7,400, but not more than $11,099, the tax rate is 3.5% minus $129.48;
    If net income is at least $11,100, but not more than $18,599, the tax rate is 4.5% minus $240.47;
    If net income is at least $18,600, but not more than $30,999, the tax rate is 6% minus $519.45; and
    If net income is $31,000 or more, the tax rate is 7% minus $829.44

There is a separate Low Income Tax Table which may be used in certain circumstances. Beginning in 2007, the Low Income Tax Table offers a full exemption to those with income below the federal poverty level. There is additional tax relief for taxpayers earning less than 133% of the federal poverty level income.

Arkansas residents are generally taxed on the same income that they report for federal income tax purposes. However, Social Security benefits, VA benefits, Workers’ Compensation, Unemployment Compensation, Railroad Retirement benefits and related benefits are exempt from tax. Additionally, there is a $6,000 exemption on taxable retirement income and a $9,000 exemption on military income per taxpayer.

Arkansas has an odd set of rules related to capital gains. Briefly, 30% of net capital gains are excluded from income with the remaining 70% treated as ordinary income. Short-term capital gains (held less than one year) are 100% taxable as ordinary income.

One interesting addition: beginning in 2007, Arkansas imposed a 3% flat tax on winnings from “electronic games of skill” (really, games of chance but the legislature has outlawed most of those – nonetheless, slots and the like are considered games of skill). Winnings which are taxed at 3% are not otherwise included as income to the taxpayer.

Some of the specific disallowed deductions for medical expenses were pretty funny… I mean, who doesn’t think that ear piercing should be disallowed as a medical expense? But apparently some folks do since it made it onto the list. Also on the list? Tattoos, maternity clothes, “spiritual guidance” (not kidding) and a gravestone. Note to residents of Arkansas: if you’re purchasing a gravestone, no further medical deductions are necessary. Just saying.

And those Arkansas politicians aren’t stupid: on your Arkansas tax return, you may take political contributions as a tax credit (up to $50 per individual and $100 per couple) in each tax year.

Arkansas does participate in the Set Off program. An Arkansas state tax refund will be taken to satisfy any outstanding liabilities owed to the State of Arkansas or to the Internal Revenue Service; a federal refund will be taken for same.

Sales Tax.

Arkansas sales tax is 6%. Some cities and counties may add a local sales tax, bringing the rate to as high as 8.5-9% across the state.

Sales tax is imposed on most retail goods and some services. Sales of food are taxed at a reduced rate of 3%. Prepared food and dietary supplements are taxed at 6%.

An additional mixed drink tax of 10% is imposed on the sale of alcoholic beverages (excluding beer) at restaurants. A 4% tax is imposed on the sale of all mixed drinks (except beer and wine) sold for “on-premises” consumption. There is a 3% “off premises” tax on retail sales of liquor and wine, and an additional 1% tax on sales of beer.

Sales of prescription medicines are exempt from sales tax. Additionally, sales of insulin and test strips for diabetes testing are exempt from sales tax.

Tobacco Tax

Arkansas’ tax rate on cigarettes is a low $.59 for a package of twenty cigarettes, ranking them 33rd in the country. The national average is $1.14 per pack.

There is a proposal – being met with much resistance – to raise the tax on cigarettes by $.50 in 2009.

Gas Tax

The gas tax rate in Arkansas is $.218 per gallon (the 19th lowest in the country).

Property Taxes

In Arkansas the property tax generates revenue for school districts (77%), county (15%) and city governments (8%). Additional special district taxes may apply.

In 2002, property taxes accounted for 16% of Arkansas’ state and local tax revenue, about half the national average of 31%. Only five states (West Virginia, Kentucky, Alabama, New Mexico and Louisiana) rely less on property taxes than Arkansas (source: US Census).

The average 2003 property tax rate was tax rate of $47.81 for every $1,000 of assessed property (source: Arkansas Assessment Coordination Dept).

Inheritance and Estate Tax

Arkansas does not impose an inheritance tax or a gift tax. Like most states, Arkansas no longer has an estate tax since it was tied to the federal estate tax state death tax credit.

Miscellaneous Tax

As a beauty pageant girl (see, there’s lots about taxgirl that you didn’t know), I couldn’t let the miscellaneous tax for “beauty pageant registration fees” go by without a mention. Rates vary.

There is also a soft drink tax collected by every distributor, manufacturer, or wholesale dealer in Arkansas (sorry Dad).

Overall Tax Burden

The overall tax burden in Arkansas, taking into account taxes paid by individuals, results in a ranking as 14th most-tax burdened state in the country, according to Tax Foundation. Arkansas’ tax burden ranking has been dropping for a number of years – many pundits credit former Governor Huckabee.

taxgirl says

Arkansas is an interesting state when it comes to taxes. Like Alabama, it has a relatively low GDP per capita. Yet, the tax burden by percentage is higher than the national average.

And it’s not just the numbers. The income tax structure is overly complicated – six tiers? Really? With a span of 1% to 7%? That’s a big difference. And a top rate of 7% puts Arkansas near the top of the country in terms of maximum tax rates.

The sales tax system is regressive. Taxes on food – including groceries and prepared foods – are generally most difficult for those with lower incomes. The sales tax rate also stands above the national average. Overall, Arkansas is a low income state. A regressive, high sales tax a low income state seems a bit incongruous. Interestingly, many organizations in Arkansas have protested an increase in the cigarette tax with the regressive tax argument – I wonder why there isn’t much outcry about the existing sales tax?

Even with a relatively high tax burden, Arkansas still depends on the feds for extra funding. Like Alabama (but unlike Arizona), Arkansas taxpayers receive more in federal funding per dollar of federal taxes paid than the average state. In 2005, Arkansas citizens received approximately $1.41 of federal spending for every $1.15 paid to the Treasury.

When it comes to property taxes, Arkansas can boast some of the lowest in the nation. Since the schools are the biggest recipient of property tax dollars, you’d expect education to suffer. Yet, Arkansas sits more or less in the middle of high school graduation rates (source: Manhattan Institute). This means one of two things: either Arkansas receives federal funding to put towards its schools or increased school dollars don’t always correlate to educational success. I haven’t been able to figure out which.

So, low property taxes, regressive sales taxes and income taxes that are all over the place. It’s hard to characterize Arkansas’ tax structure other than to say that the overall burden remains relatively high compared to taxpayer income. As federal dollars certainly shrink, it will be interesting to see how Arkansas compensates: you can’t get blood from a stone.

Anyone from Arkansas want to chime in? I’m curious to hear whether Governor Beebe is a popular choice in a post-Huckabee economy…

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(Note: tax rates were current as of 12-28-2008 and were taken from the AR Department of Revenue web site unless otherwise noted.)

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Psst, Where’s Your State Tax Primer?

December 20, 2008 · 1 comment

If you’re looking for the series primer on state taxes, don’t panic… it hasn’t gone anywhere. It’s just on a brief hiatus while I post the 12 Days of Charitable Giving. I’ll be back any day now with Arkansas!

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State Tax Primer from A to W: Alaska

November 12, 2008 · 8 comments

Welcome to my second in a series on state taxes! For information about what I’m trying to do, read my introductory bit. Next on the agenda: Alaska!

ALASKA

Population: 683,478 (47th)

Capital: Juneau

Largest City: Anchorage

Gross Domestic Product: $160 billion

GDP per capita: $43,748 (7th)

2004 election winner: George W. Bush

web site: http://www.alaska.gov/

Income Tax

Alaska does not have an individual income tax – only one of seven such states in the nation.

Sales Tax.

Alaska has no state sales tax – one of five such states in the nation. However, municipalities can – and many do – collect a local sales tax. Local sales tax, when imposed, hovers at around 5%.

Tobacco Tax

Alaska’s tax rate (as of January 1, 2008) on cigarettes is $2.00 per package of twenty cigarettes, the 6th highest rate in the country (source).

Gas Tax

The gas tax rate in Alaska is usually $.08 per gallon, the lowest gas tax rate in the country (source). However, the gas tax has been temporarily suspended by Governor Palin through August 2009.

Property Taxes

In Alaska, local municipalities may levy a property tax but few (about 15%) do – Fairbanks is one notably expensive exception.

By state law, citizens age 65 or older and disabled veterans enjoy an exemption from the first $150,000 of assessed value from property taxes.

Inheritance and Estate Tax

Alaska does not impose an inheritance tax. The Alaska estate tax was phased out with the revisions to the federal estate tax system as of 2005.

Overall Tax Burden

The overall tax burden in Alaska, taking into account taxes paid by individuals, results in a ranking as 50th most-tax burdened state in the country, according to Tax Foundation. That’s right, dead last. Put another way, it’s the least tax burdened.

taxgirl says

Soooo… Alaska has the 7th highest GDP per capita and the lowest tax burden of any state. Sounds like the good folks of Alaska are doing alright, huh?

Which begs the question: how? How on earth does a state support itself with no state sales tax, no state individual income tax, the lowest gas tax rate and little other rates?

Federal welfare and big oil.

In 2007, federal funding accounted for almost one-fifth of Alaska’s revenue. During the oil boom, federal funding accounted for nearly one-third of Alaska’s revenue. Most of the remainder came from oil-related sources.

How does that compare with other states? Alaska taxpayers do far better than the national average when in comes to federal dollars. Per capita, Alaska receives more federal funding than any other state in the country, an honor held since 1999. With respect to money received from the federal government versus tax paid, the state ranks 3rd highest nationally. (source)

In other words, much of Alaska’s infrastructure is paid for by federal funds, not state funds. If you don’t have much in the way of expenses, you don’t need much in the way of additional revenue. This means that individual taxes can remain low, making the current felon embattled Senator from Alaska, Ted Stevens (nicknamed “Uncle Ted”) very popular. Stevens, who served for a number of years on the federal appropriations committee, has represented Alaska in the US Senate since 1968 and is said to be one of the main reasons that Alaska received more federal earmarks per capita over the last ten years than any other state.

This isn’t to say that there is no state tax-related revenue in Alaska (yes, double negatives). There is. And while this is intended to be a primer on individual state taxes, it is worth noting that corporate tax revenues from Alaska are considerable, even while Alaska maintains its reputation as a “business friendly” state. This is because much of the corporate state tax revenue is attributed to the oil industry.

Additionally, the completion of the federally funded Trans-Alaska pipeline and the establishment of Alaska as an energy center for gas and oil, has lead to riches in the state. After the pipeline was completed, the state created a program, the Alaska Permanent Fund, that invests and distributes royalties from oil companies doing business in Alaska to eligible residents – the fund may not be used for general expenditures without voter approval. The first check was paid out to residents in 1982. In 2008, the check was a record $3,269 per eligible resident; in 2007, the check was $1654. Eligible residents are those (including children) who have lived in Alaska for a full calendar year.

A second fund, the Constitutional Budget Reserve, was created in 1990 as the result of a lengthy tax dispute with the oil industry (as a result of the pipeline). Hess and other oil companies accused of cheating the state out of revenue, settled. The fund has been used to balance the budget, when necessary. In 2004 the CBR was worth about $2 billion. No funds have been taken out of the CBR since 2005, according to Alaska’s budget. (source)

Oil revenues, together with federal funds, have resulted in prosperity in Alaska. It will be interesting to see how long this lasts. The future of the oil industry is uncertain. Recent hits to the automobile industry and drops in consumer confidence may spur a slowdown, and the threat of a windfall profits tax or other federal increase remains. And while Senator Stevens remarkably managed to hold onto his seat during the most recent election despite being a convicted felon, it is clear that his power is waning in Washington. In a tight federal economy, this will certainly be disadvantageous. It would be foolish, under these circumstances, to depend on these traditional sources of revenue indefinitely. Change is going to come to Alaska. The questions really are: how much impact will there be and when will it happen?

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(Note: Whenever possible, information for this post was taken from primary sources such as the Governor’s Budget, Division of Taxation and Department of Revenue. When necessary, additional information was taken from reputable secondary sources such as reports from Tax Foundation and fact checked against similarly reputable sources.)

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State Tax Series Begins!

October 23, 2008 · 12 comments

Today, I kick off my series on state taxes! The plan is to make it from A to, er, W (Alabama to Wyoming).

It’s worth noting that the series is meant to be a primer, not an exhaustive list of all taxes and rates applicable to any given states. I practice in New Jersey and Pennsylvania, so I am not familiar with the nuances in other states. So, while I’m making every effort to do my homework, I’m relying on resources from those individual states and of course, my fellow tax professionals.

I also want to note that I’m focusing on the major taxes that affect individuals, largely income taxes, gas taxes and sales taxes. Since real estate taxes vary wildly even within individual states, I likely won’t mention those unless there’s a tax of significant interest. I won’t be covering business taxes or excise taxes unless I find them particularly curious. Why? Because it’s my blog and I’ll post what I want to (do I have to have a reason?).

I may ruminate a bit about local taxes – especially Philly (Mayor Nutter, are you reading?) and New York. But don’t count on much in the way of local taxes otherwise. The exception will be those local townships and cities where, you, the reader, offer me some insight.

I really do welcome personal anecdotes about your experiences in various states. I’m especially interested in folks who have moved for tax reasons (be sure and vote in the poll) as well as quirky tax rules. You can send your thoughts via email or leave as a comment.

And finally, I’m going to refer to each state’s overall tax burden as determined by the Tax Policy Center – and then talk a little bit about how I feel about the tax structure in each state. Tax system too complicated? Taxes too high? You know, the good stuff. But that only works as a conversation if you chime in, too. So let me know what you think as we go along – but play nice! I don’t want folks beating other states up “just because” – like “just because” the Phils kicked the Rays’ butts in Game One of the World Series (and Mom, I apologize in advance for using the word “butt” – I know how you feel about such strong language).

So, what are you waiting for? Play ball! Let’s get started!

And once more with feeling: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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State Taxes

15 October 2008

As part of my series, I’m curious: have you ever moved your home or business to another state because of state or local tax burdens? If you vote yes, I’d love to know which state you left – leave it in the comments!

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State Tax Series Begins This Week!

14 October 2008

It’s finally here! I’m kicking off my state tax series this week… beginning with Alabama and ending in a bit with Wyoming (sorry, Wyoming, you’re like the short kid in school).
I’d love to hear your stories – I might be able to use them in the series. If you moved to or away [...]

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New Jersey is #1!

9 August 2008

Don’t get excited… we’re not talking about football (Favre or not, I can’t get behind the Jets**. Go Eagles!). We’re talking about tax.
According to the Tax Foundation, New Jersey residents paid the highest percentage of state and local taxes. Folks from New Jersey paid a whopping 11.8% of income in state [...]

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