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Department Of Revenue Analyzes FY 2006 State And Local Tax Burdens

Rhode Island Ranks 11th, Connecticut 20th, Massachusetts 37th

Gary S. Sasse, Director of the Department of Revenue, today announced the release of an analysis that shows how Rhode Island state and local tax collections rank nationally. The analysis finds that Rhode Island has the 11th highest total state and local tax burden as a percentage of state personal income, a slight improvement over the state’s FY 2005 ranking of 9th. This compares to Connecticut which has the 20th highest total burden and Massachusetts which has the 37th highest total tax burden.

“The data indicate that Rhode Island still has a long way to go to become competitive with our neighboring states when it comes to the burden of state and local taxation,” Gary Sasse stated. “But it also shows that we are slowly beginning to move in the right direction.”

“While Rhode Island’s tax burden is still far too high, especially in comparison to our neighbors in Connecticut and Massachusetts, we have begun to gain a little ground by moving out of the top ten of high tax states,” Governor Carcieri said. “Rhode Island’s elected leaders must now build on this progress and continue working to reduce the state’s overall tax burden. In order to compete effectively for jobs, we must eventually bring our tax burden more into line with our primary competitors.”

According to the analysis, Rhode Islanders paid $119.79 per $1,000 of state personal income in FY 2006. For Connecticut the equivalent amount was $114.94 while for Massachusetts it was $105.69.

The data for Rhode Island indicates that, in FY 2006, 11.98 percent of state personal income is captured by the state and local governments in the form of taxes paid. For Connecticut the comparable percentage is 11.49 percent and for Massachusetts it is 10.57 percent. Nationally, the comparable percentage is 11.24 percent.

The analysis, compiled by the Office of Revenue Analysis, is based on FY 2006 state and local revenue data that was released by the U.S. Census Bureau on May 16, 2008 and FY 2006 state personal income data that was released by the U.S. Bureau of Economic Analysis on March 26, 2008. The analysis is the first in what will be periodic reports produced by the Office of Revenue Analysis and released to the public.

“The Office of Revenue Analysis will proactively analyze and report the analysis of revenue data as it becomes available, said Paul L. Dion, Chief of the Office of Revenue Analysis (ORA).

ORA intends to report on several measures used to compare interstate tax burdens. This analysis compares taxes collected per $1,000 of personal income and as a percent of personal income. Future ORA analyses will compare effective tax rates by income group and develop taxpayer profiles, which will be built upon assumptions of taxpayer behavior.

“Each of these measures has its own limitations and merits. For example, this analysis shows Rhode Island state and local tax collections per $1,000 of personal income but it does not assess the distributional consequences of how these state and local taxes were collected,” Dion continued.

At the component level, Rhode Island’s national tax burden rank varies widely. “The difference in Rhode Island’s national ranking on different tax components reflects the different policy choices each state has made,” stated Dion.

With respect to property taxes, Rhode Island ranked 6th highest in state and local property tax burden for FY 2006 with Rhode Islanders paying $48.32 per $1,000 of state personal income. Both Connecticut and Massachusetts ranked lower than Rhode Island, with Connecticut ranked 8th and Massachusetts ranked 17th. On a per $1,000 of personal income basis, Connecticut’s property taxpayers paid $43.76 while those in Massachusetts paid $37.36.

For state and local general sales tax burdens, Rhode Island ranked 38th nationally in FY 2006 with Rhode Islanders paying $21.87 per $1,000 of state personal income. Comparable calculations for Connecticut and Massachusetts are 41st and $17.59 per $1,000 of personal income and 46th and $13.83 per $1,000 of personal income.

Regarding state and local individual income tax burdens, Rhode Island ranked 24th nationally in FY 2006 with Rhode Islanders paying $26.10 per $1,000 of personal income. Both Connecticut and Massachusetts ranked higher than Rhode Island with each state ranking in the top 15 nationally in state and local individual income tax burden. For Connecticut, which ranked 11th nationally in FY 2006, taxpayers paid $33.42 per $1,000 of state personal income while for Massachusetts, which ranked 7th nationally, taxpayers paid $36.17 per $1,000 of state personal income.

“It is important to note that how a state raises the revenues it needs to fund its activities is as important as how much it raises,” Sasse said. “Thus, even though Connecticut and Massachusetts have higher individual income tax burdens per $1,000 of personal income than Rhode Island, the means by which they assess individual income taxes is very different from that of Rhode Island.”

“One of the tasks of the Governor’s newly formed Strategic Tax Policy Workgroup is to consider these types of differences, make recommendations regarding Rhode Island’s tax structure and compare them to those of Connecticut and Massachusetts,” noted Sasse.

Related links

Department or agency: Department of Revenue

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Release date: 06-03-2008

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