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The current state of U.S. tax burdens

Michael Bernard on the relationship between total tax burdens and sales tax rates.

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Each U.S. state’s overall tax environment has a unique flavor, depending on a delicate and constantly changing blend of ingredients ranging from property taxes to business licenses. Sales taxes and (in most cases) individual income taxes are key components of the recipe. All of the ingredients ultimately matter from sales tax rates and rules perspective.

Some states have reduced their income tax rates due to a combination of unexpected surpluses from post-pandemic consumer spending, a rising stock market and federal aid. However, those enabling factors (especially federal aid) are unlikely to sustain. Regardless, tax leaders should watch for a potential shift from taxing income to taxing consumption – which might trigger more sales tax rate increases.  

For a helpful view of each state’s overall revenue mix, including income tax and sales tax, check out the Tax Foundation’s 2024 Facts & Figures research on state and local tax burdens based on 2022 data. (To review this information, go to the Tax Foundation’s 2024 Facts & Figures landing page and then select Table 2: State-Local Tax Burdens per Capita & as a Percentage of Income.) 

By these measures, the state with the lowest total tax burden per capita is Alaska, followed by Wyoming, Tennessee, Texas and Oklahoma. The states with the highest total tax burdens are New York, Connecticut, Hawaii, Vermont, and Minnesota, respectively. 

These tax burdens will continue to change, as will sales and use tax rates. The number of sales tax rates and rules changes reached a record high in 2023. As states’ rainy-day funds and newly replenished coffers start to shrink, sales taxes may be their preferred revenue solution, rather than a roll-back of income tax relief. 

Tax leaders should be on the lookout for new compliance complexities and changes – especially at local levels, according to my initial review of Vertex’s 2024 Mid-Year Sales Tax Rates and Rules Report. More on that report soon…
 

Disclaimer

Please remember that the Vertex blog provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in the Vertex blog are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.