An annual report ranks the states with the biggest and lowest tax burdens.
California, the lore goes, has some of the highest taxes in the U.S. This talking point is often used by conservatives trying to blame the states’ liberal leaders for everything from stalled business development to the exodus of high-earning residents.
At the end of 2021, Elon Musk named taxes as one of the reasons he moved the Tesla (TSLA) – Get Free Report headquarters from Palo Alto to Austin, Texas.
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Reaching up to 13.30%, California does have the highest personal income tax rate in the country. But when one looks at tax burden overall, California falls much lower on the list.
An annual report by personal finance website WalletHub found that the top spot is actually taken by New York — a combination of income, property and sales taxes places individuals’ tax burden at 12.42%.
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Different from a rate, a tax burden is the proportion of one’s income that goes toward tax. The average New York resident gives away 4.72% for income taxes, 4.36% for property taxes and 3.39% for sales taxes.
“Unlike tax rates, which vary widely based on an individual’s circumstances, tax burden measures the proportion of total personal income that residents pay toward state and local taxes,” writes WalletHub’s Adam McCann.
Hawaii, which placed second on the list of states with the highest burden, has a respective income and property tax burden of just 2.86% and 2.74%. The state scores so high because of the very high (6.71%) sales tax related to getting goods to the island.
Otherwise, tax burden tends to be highest in the Northeast. Maine, Vermont and Connecticut were the other three states that landed in the top five.
On the bottom end, Alaska is also subject to certain stereotypes about low taxes. The WalletHub numbers confirm this as it lands at the bottom with a total tax burden of just 5.06%. The state separated from the continental U.S. has no income tax at all while the respective property and sales tax burdens are just 3.59% and 1.47%.
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Delaware, New Hampshire, Tennessee and Florida all rounded out the top five of the states with the lowest tax burdens.
California, meanwhile, landed twelfth on the list. The state has matching income and sales tax burdens of 3.05% while property is at 2.79%. This puts California’s total tax burden at 8.89% — closer to the top but not in the ten states where it is the highest.
The biggest difference between a tax burden and a tax rate is that the former is in flux depending on the state’s economy in a given year. While a high tax burden can similarly scare away businesses from working in the states, a high number can also indicate that its economy is robust and developing industries such as infrastructure and education.
“States also vary in how much they rely on these different taxes to fund themselves,” Jordan Barry, a tax law professor at the University of South California, told WalletHub. “A state that raises more revenue from sales taxes is going to have a steadier funding stream than one that relies more heavily on corporate income taxes.”