NCPA - National Center for Policy Analysis

Where Do State and Local Governments Get Their Tax Revenue?

September 17, 2010

Newly released Census data show how different the 50 states' fiscal systems are.  Their reliance on various sources of tax revenue differs widely because they have different endowed resources and policy priorities.  These differences are reflected in the way states and local governments collect taxes, says the Tax Foundation.

  • States heavily endowed with valuable natural resources, such as Alaska and Wyoming, will usually exploit those tax revenue sources, which they can do without much fear of driving the activity out of state given that those natural resources are largely immobile.
  • States with more tourism like Nevada and Florida rely more heavily on sales taxes so that they can forgo taxing income. 

A calculated decision by a state to concentrate taxation in a few sources is a plus for the state's taxpayers, significantly lowering the burden of government and making the local tax climate conducive to economic growth.  Of course, that means relying more heavily on the remaining tax sources for revenue, says the Tax Foundation.

  • Nationwide, states and localities are most dependent on property taxes, collecting over 30 percent of their total tax revenue from that source.
  • In fiscal year 2008, states and localities were, as a group, equally dependent on sales and income taxes: each provided 22.9 percent of total revenue.
  • Licenses and other taxes provided 8.2 percent of total state and local revenue, and corporate income tax revenue provided 4.3 percent.

Source: Ryan Forster and Kail Padgitt, "Where Do State and Local Governments Get Their Tax Revenue," Tax Foundation, August 27, 2010.

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