The Tax Foundation recently released its latest rankings showing states with the highest per capital state and local tax collections and, once again, has placed New Jersey among the Top 5.
Across the country, state and local governments collected $7,038 per capita in total state and local taxes in FY 2023. The five states with the highest tax collections per capita were New York ($12,506); North Dakota ($9,834); Hawaii ($9,758); Connecticut ($9,388), and New Jersey ($9,178). The District of Columbia surpassed all 50 states ($15,009).
In contrast, the five states with the lowest tax collections per capita were Mississippi ($4,868); Tennessee ($4,912); Alabama ($4,950); South Carolina ($4,984); and Arizona ($5,006).
“The District of Columbia, New York, and New Jersey all have highly progressive state income tax structures and a greater reliance on public sector services like transit,” wrote Tax Foundation Policy Analyst Nicole Fox on May 11.
“Connecticut also has a progressive income tax structure, but to a lesser extent. Hawaii has a highly progressive income tax structure as well, but it also has an overly broad sales tax, known as the General Excise Tax, that applies to many business-to-business transactions. Hawaii also receives a large amount of tax revenue from tourism,” she wrote.
North Dakota, however, made the Top 5 in per capital state and local taxes even though its state income tax rate at 2.5% is the lowest in the country. The reason for this is that North Dakota generates significant oil and gas tax revenue relative to its small population.
Severance taxes – a state or local excise tax imposed on the extraction of non-renewable natural resources such as oil, natural gas, coal, and timber – are an example of “tax exporting,” the Tax Foundation noted. Tourism taxes – such as hotel, car rental, and meal taxes also disproportionately impact nonresidents.
As a result, states that generate substantial amounts of exported tax revenue, such as severance and tourism taxes, will also show tax collections per capita that are higher than the actual tax burden that falls on the in-state population. Taxes on businesses may also be “exported,” at least in part, to investors across the country, and to employees wherever they are located, the Tax Foundation said.
“It is important to keep both legal incidence and economic incidence in mind when evaluating the true costs of any tax,” Fox said. “This helps explain why some states appear high-tax on a per-capita basis even when resident voters bear a relatively low share of the burden.”
This was the second year in a row that New Jersey ranked No. 5 for state and local tax collections. Last year, using fiscal year 2022 data, New Jersey ranked No. 5 with state and local per capita tax collections at $9,366.
