The Times West Virginian

Business

May 4, 2014

West Virginia falls in the middle of state rankings

FAIRMONT — In terms of the percentage of income that residents pay in taxes, known as the “tax burden,” West Virginia falls in the middle of the state rankings.

In April, the Tax Foundation released its Annual State-Local Tax Burdens report. The nonpartisan tax research organization, established in 1937 and headquartered in Washington, D.C., publishes this study every year using continually updated, accurate data that goes back to 1977.

In 2015, the organization will change the timing of the publication release to January to make these statistics available at the beginning of each year.

“The main point of our report is to just look at the share of state income that people pay to state and local taxes,” said Liz Malm, economist on the Tax Foundation’s Center for State Tax Policy team. “We mean it to be an informational piece that can be used to rank the states against each other.”

Malm, who wrote the 2014 study with Gerald Prante, explained that this year’s report uses data that is a couple years old — from fiscal year 2011 — because it is the latest local information that has been released by the U.S. Census Bureau.

The main data source for the report is the Census Bureau’s Government Finance Division, and figures also come from the Bureau of Economic Analysis, Council on State Taxation, state Departments of Revenue, Congressional Budget Office, and sectors like energy, travel and transportation.

The Tax Foundation takes into account the fact that states are able to shift some of their tax burdens across state lines, and some of the taxes taken in are not from state taxpayers, she said. So the tax burden includes taxes paid to state and local government, and also state and local taxes that West Virginia residents paid to other states.

“West Virginia is interesting because it is one of the states that’s able to export a big chunk of its tax collections,” Malm said.

She commented that, on average, about 27 percent of the tax collections in the United States come from nonresidents. That number is a bit higher in West Virginia, which is able to get 38 percent of its tax collections from across state lines due to severance taxation.

West Virginia was ranked as having the 19th highest state-local tax burden as a share of state income in the country in 2011. The study reports that 9.7 percent of the collective incomes of West Virginia taxpayers went toward state and local taxes. The average for the United States as a whole was slightly higher, at 9.8 percent.

Malm said West Virginia is among the states clumped in the middle of the rankings that are very close together in percentage. Any change in percentages in that middle group can cause states to shift drastically in how they are ranked.

In 2009 and 2010, West Virginia’s tax burden remained at 9.9 percent, but its ranking jumped from 25th to 21st over that period of a year.

However, the states at the top and the bottom of the list tended to stay the same or didn’t move much in relation to the other states, Malm said. New York, New Jersey and Connecticut, which are each at 11.9 percent or higher, have respectively had the first-, second- and third-highest tax burdens as a share of income for three years in a row.

In 2011, Wyoming’s tax burden was the lowest — ranked 50th — at 6.9 percent. It was followed by Alaska, coming in 49th at 7 percent, and South Dakota, ranked 48th at 7.1 percent.

On average, the local-state tax burdens declined across the country in 2011. Malm said a big driver of this movement was the fact that income in the nation and most states, including West Virginia, increased from 2010 to 2011.

In previous years, states’ incomes were dropping due to the recession. Because taxes were being paid out of a smaller income, the tax buren appeared bigger during that time frame, she said. But the most recent statistics showed income going up, and the tax burden as a share of income decreased as a result.

“A lot of it was income driven,” Malm said. “In all of the states, income went up in real terms.”

She said it will be interesting to see how the next round of results will play out.

To access the full Annual State-Local Tax Burdens report, visit taxfoundation.org.

Email Jessica Borders at jborders@timeswv.com or follow her on Twitter @JBordersTWV.

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