Week 10 Discussion 1
North Carolina residents pay nearly 10 percent of their income in taxes, placing the state squarely among the 20th-most taxed in the nation, said the nonprofit Tax Foundation in its most recent Annual State-Local Tax Burden Ranking.
With its ranking at No. 17, North Carolina has the second-highest tax burden per person among Southern states at 9.9 percent, according to the Tax Foundation researchers. “In general, lower tax burdens are going to be associated with more money in the hands of businesses,” said Scott Drenkard, a Tax Foundation economist. Businesses can do more hiring and increase productivity in a state where the tax burden is not as high.
According to the findings of the foundation’s research, North Carolina residents have a tax burden of 9.9 percent. They paid $2,648 in taxes per capita to their home state, and $887 to other states, for a total of $3,535. Per capita income is $35,659, or 37th lowest among the states. To arrive at the 9.9 percent tax burden, the tax total is divided by the per capita income.
North Carolina residents’ tax burden was 9.7 percent in 1977 and dipped to 9.2 percent by 2000. It jumped to 10 percent each year from 2006 to 2009, except for 2008, when it was 10.2 percent, according to a table provided with the research.
“In fiscal year 2010 we saw both shrinking taxes paid and shrinking incomes for most state residents, but taxes shrank faster than income in most cases, thus a majority of states saw decreased burdens and the national average decreased very slightly also,” Malm said.
South Carolina tax burden:
South Carolina had the 10th lowest effective income tax rate of the 41 states with an income tax in 2012. South Carolina’s high standard deductions and exemptions allow taxpayers to shield a higher portion of their income from state income taxes, reducing their effective tax rate compared with most other states.
South Carolina’s effective tax rate is 2.99 percent, based on 2012 figures, the most recent studied. That effective rate is far lower than the state’s 7 percent top income tax rate.
The perception is S.C. residents are taxed at the 7 percent rate, when reality is – after deductions and exemptions – the effective rate is 2.99 percent.
South Carolina is a comparatively poor state. In 2012, 81.5 percent of S.C. taxpayers reported federal adjusted income of less than $50,000.
Legislators also reviewed the state’s 6 percent sales tax rate. Local governments can tack on additional sales taxes for special purposes, including building projects or tourism-related activities.
However, the state misses out on about $3 billion a year in revenues because some goods and services are exempt from the sales tax.
In 2012-13, the largest sales tax exemption – $722 million – was on motor fuel, which has its own excise tax. The second largest exemption – $449 million – was on sales of prescription medicines. The third was groceries – $435 million.
Virginia tax burden
The state of Virginia has a progressive income tax, with rates ranging from 2% to a top rate of 5.75%. Of the 43 states with a personal income tax, that top rate slightly lower than average. It ranks 27th overall.
The Commonwealth’s sales tax ranks near the bottom of all states. When taking into account both state and local rates, Virginia’s average of 5.63% is 10th lowest in the country. The property and fuel taxes in the state are likewise lower than the national averages.
There are four tax brackets for filers in Virginia. While lower earners pay lower marginal (and effective) rates, the top bracket begins at just $17,000 in taxable income. This means most taxpayers in Virginia will pay the top rate of 5.75%.
In Virginia, you can only claim itemized deductions if you did so on your federal return. Conversely, if you did claim itemized deductions federally, you must itemize your deductions on your Virginia return.
There are several categories of income that are taxable at the federal level but may be subtracted from your taxable income in Virginia. Among the types of income you can subtract from your AGI to calculate taxable income are disability income, Virginia lottery prizes, Virginia college savings plan distributions and Virginia National Guard income. On the other hand, certain types of income, most notably capital gains, are taxed as regular income and must be included in your state return.
Virginia Sales Tax
The base, statewide rate of 4.3% in Virginia is combined with a statewide local rate of 1%, meaning the effective floor for sales tax in Virginia is 5.3%. In addition to that 5.3% rate, localities in the Northern Virginia and Hampton Roads regions collect a 0.7% sales tax, bringing the total in those areas to 6%. The table below shows the sales tax rates for the counties of Virginia. In Virginia, many cities are “independent cities” which means they are not in any county.