• When Illinois and Massachusetts residents ownsecond homes in nearby Wisconsin or Maine,local governments in Wisconsin and Maine willtally those property tax collections, but we willshit those payments back to the states o thetaxpayers.• When people all over the country vacation inDisney World or Las Vegas, tax collectors willtally the receipts rom lodging, rental car, res-taurant, and general sales taxes in Florida andNevada, but we will count those payments inthe states where the vacationers live.Every state’s economic activity is dierent, asis every state’s tax code. As a result, each varies intheir ability to “export their tax burden”—that is,to collect revenue rom nonresidents. Economistshave been studying this phenomenon since at leastthe 1960s when Charles McLure (1967) estimatedthat states were extracting between 15 and 35 per-cent o their tax revenue rom nonresidents.Much o this interstate tax collecting occursthrough no special eort by state and local legisla-tors or tax collectors. Tourists spend as they traveland all those transactions are taxed. People whoown property out o state pay property tax out o state. And the burden o business taxes is borneby the employees, shareholders, and customers o those businesses wherever they may live.Many states, however, make a conscious e-ort to levy taxes specifcally on nonresidents, andthat eort seems to be accelerating. In act, many campaigns or tax-raising legislation in the last sev-eral years have explicitly advertised the ability topush the burden o a certain tax onto non-voting,nonresident payers as a reason or resident votersto accept the tax.This beggar-thy-neighbor eort has beenmostly legislative, exemplifed by a wave o tax hikes on tourism: hotel rooms, rental cars, res-taurant meals, and local sales taxes in resort areas.States and localities have also targeted nonresi-dents with higher property taxes and, in rare cases,higher income taxes. The eort to utilize nonresi-dents has also been administrative, as departmentso revenue have pursued nonresident income tax revenues rom individuals and corporations withar more zeal than in years past.In some cases, the tax exporting is a washrom the tax collector’s perspective. That is, a statecollects the same amount rom nonresidents as itsown residents pay to out-o-state governments.But in many cases there is a signifcant dier-ence—some states are able to collect a signifcantportion o revenues rom out-o-state taxpayers.By tallying tax payments in the taxpayers’home states, this report allows policymakers,researchers, the media, and citizens to go beyonda mere measure o collections to the question o which states’ residents are most burdened by allstate and local taxes.
Ranking State-Local Tax Burdens
The state-local tax burdens o each o thefty states’ residents are quite close to one an-other. This is logical considering state and localgovernments und similar activities such as publiceducation, transportation, prison systems, andhealth programs, oten under the same ederalmandates. Furthermore, tax competition betweenstates can oten make dramatic dierences in thelevel o taxation between similar, nearby statesunsustainable in the long run.Thereore, it is not surprising that slightchanges in taxes or income can translate to seem-ingly dramatic shits in rank. For example, thetwenty mid-ranked states, ranging rom Oregon(16th) to North Dakota (35th), only dier in bur-den by just over one percentage point. However, while burdens are tightly clustered in the center o the distribution, states at the top or bottom canhave substantially higher or lower burdens.
Highest and Lowest Tax Burdensin the Nation
In fscal year 2010,
the residents o threestates stand above the rest, paying the higheststate-local tax burdens in the country: New York,New Jersey, and Connecticut. These are the only states where taxpayers orego over 12 percento their income in state-local taxes, over a ullpercentage point above the next highest state,Caliornia.New York, New Jersey, and Connecticuthave occupied the top three spots on the list since2005. This may be partially attributed to high lev-els o state expenditure which must be sustainedby high levels o revenue. Further, in the caseo Connecticut and New Jersey, relatively hightax payments to out-o-state governments addto already high in-state payments. This is likely related to the act that these are high income statesthat pay high levels o capital gains. High levelso capital gains will result in residents paying anincreased share o other states’ business taxes.New York residents paid the most at 12.8percent o income. Next on the list are New Jersey and Connecticut, where residents paid 12.4 and