A new study by the Tax Foundation, using the latest data from 2010, ranks the combined state and local tax burden in the 50 states. It calculates the percentage of income state residents are paying in state and local taxes and whether those taxes are paid to their own state or to others. (The study does not attempt to find the amount of money state and local governments have collected.) As for taxes paid to other states, the study estimates how much a Montanan might pay in taxes while, for example, vacationing in another state.
For the entire U.S., the average tax burden per capita is 9.9 percent. The average taxpayer is paying $3,055 to their home state and $1,056 to other states, for a total of $4,112 in state and local taxes. The average per capita income in the U.S. is $41,146. For the study, a ranking of 1st is the highest tax burden while 50th is the lowest.
For the 2010 tax year, Montana’s relatively low state and local tax burden garnered a ranking of 38th in the nation. Its state and local tax burden is 8.6 percent – 1.3 percentage points lower than the national average and 4.2 percentage points lower than New York’s high of 12.8 percent. The average taxpayer in Montana is paying $2,005 to state and local governments in Montana and $1,084 to other states, for a total of $3,089 out of a per capita income of $35,871. Montanans pay about two-thirds of what counterparts in other states pay in taxes to their home state, but pay a small fraction more in taxes to other states. The study shows that Montana has ranked anywhere from 27th to 43rd since the Tax Foundation started releasing the study in 1977.
Montana competes well with neighboring states in the ranking. Idaho is ranked right in the middle of the pack at 25th with a tax burden of 9.4 percent. North Dakota comes in at 8.9 percent, which places it at 35th. Wyoming and South Dakota are in the top five lowest with ranks of 46th and 49th respectively. Nationwide, Alaskans pay the least at 7 percent.
The line graph below shows the rank of Montana and our four neighboring states from 2000 to 2010. As you can see, Montana has fluctuated in the ranking over the time period from a low of 42nd to a high of 33rd. (For a good overview of Montana’s tax climate, see the Tax Foundation’s 2013 State Business Tax Climate Index.)
Looking at neighboring states, Idaho has made the biggest improvement over the time period, jumping from 8th worst in the nation to 25th. North Dakota has been the most erratic, especially from 2004 to 2010, when it went from a strong ranking of 42nd to a high of 26th. For 2010, North Dakota improved to a solid 35th. South Dakota and Wyoming have been the most consistent performers in our region between 2000 and 2010, vying for spots in the top five and often the top two nationwide.
It is worth pointing out that the study highlights that Wyoming, like this year’s winner Alaska, is able to keep the tax burden on its residents low because of revenue from severance taxes on natural resource development. According to a report by Wyoming’s Legislative Services Office, in 2009 Wyoming ranked 1st in coal production, 2nd in natural gas production, and 8th in oil production among the 50 states. Another contributing factor for Wyoming’s consistently competitive ranking is the tax-shifting nature of its 4 percent sales tax.
Anyone interested in taking a closer look at how business-friendly Montana’s 25 largest cities are, check out MPI’s recent report.