States' Shifting Reliance on Income Versus Sales Taxes

Many states are weighing policies to shift their tax burden. View data showing how it's changed in each state over time.
by | May 6, 2015

Where states derive their tax revenue has always varied significantly across state borders. Texas and Florida rely on sales taxes for the vast majority of tax revenues, while New York, Virginia and other states lean more on income taxes.

A handful of states have slowly started to shift their reliance on various taxes in recent years. Much of the movement has occurred in states controlled by Republicans who’ve targeted income taxes for cuts and have looked to raise sales taxes to offset part of the difference.

Updated state government tax collection survey data released by the U.S. Census Bureau, shown below, illustrates each state’s tax structure and how some have shifted over time. Nationally, the tax burden hasn’t moved much. It has changed in individual states, though, and a growing number will likely experience noticeable shifts if more tax proposals are passed and implemented.

Several Republican governors have made the case for gradually trimming income taxes with the goal of eventually doing away with them altogether. In Maine, Gov. Paul LePage has sought to make his proposed tax cuts permanent with a constitutional amendment eliminating the state’s income tax by 2020. Ohio Gov. John Kasich’s budget proposal calls for a 23 percent income-tax reduction coupled with a half-cent sales tax hike. In Arkansas, Gov. Asa Hutchinson signed a bill earlier this year cutting tax rates for those earning between $21,000 and $75,000 a year.

The most closely watched state is Kansas, where recent revenue projections found a budget gap of about $400 million after lawmakers passed sizable income tax cuts in 2012 and 2013. Gov. Sam Brownback has sought to bridge the gap by slowing income tax reductions, along with steep tax hikes on alcohol and tobacco.

Underpinning Republican governors’ attempts to slash income taxes is the argument that doing so spurs economic activity. Liberals, meanwhile, counter that more regressive tax systems are unfair to lower-income earners. “As income inequality continues to grow, states relying more on sales taxes will ultimately hit some revenue barriers and sustainability issues,” said Meg Wiehe, state tax policy director of the Institute on Taxation and Economic Policy. The income tax, Wiehe contends, will grow more rapidly with the economy than the sales tax and will be more stable in the long run with careful planning.

By no means, though, does a state’s reliance on income versus sales tax strictly adhere to party lines. Liberal-leaning Washington state imposes no income tax, for instance, although lawmakers there have made attempts to institute an income tax for years.

States where income taxes -- including corporate income taxes -- accounted for the largest share of tax collections in 2014 were Oregon (74 percent), New York (62 percent), Virginia (61 percent), Massachusetts (61 percent) and California (56 percent). Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming do not collect individual income taxes.

States often phase in changes to tax rates gradually, but some have experienced more dramatic shifts in tax burdens over the longer term. Income taxes accounted for roughly 31 percent of Ohio’s total tax collections last year, the lowest share since at least 1990, according to Census data. Headed in the opposite direction are states like Illinois, where income taxes made up 52 percent of tax collections, up from less than 40 percent a decade ago.

State Tax Burden Data

Select a state below to view its annual tax collection data since 1990.