The best and worst states for taxes

By Scott McCredie

We pay Uncle Sam the same no matter where we live, but property, gasoline, tobacco, sales and state income taxes are all over the map.

The differences can be extreme. An Alaskan keeps 7 cents more of every dollar than a Vermonter, once cities and the state have grabbed their share.

Factor in federal tax and the gap grows even wider. Those who earn more money generally pay a greater percentage of it in federal taxes, so states with a greater percentage of highly paid workers end up paying more.

The state in which residents pay the most in combined state, local and federal taxes, per capita, is Connecticut (38.3%), followed by New York (37.1%), New Jersey (35.6%) and Nevada (35.2%). Oklahoma residents pay the least (27.8%), followed by those in Alabama (28.0%) and Alaska (28.1%).

We're all paying more, though. The U.S. average for state and local taxes in 2007 was 11%, up from 10.8% in 2006. The average combined state, local and federal tab for 2007 was 32.7%, up from 32.3% in 2006 and 30.7% in 1980.

On same income, taxes vary

Of course, even Ted Taxpayer and Debbie Deduction, two people making the same salary and living in the same neighborhood, pay different amounts in taxes. For example, Ted's house is worth more, so he pays higher property taxes; Debbie buys fewer goods and services, thus saving on sales taxes; Ted drives a gas hog and commutes farther to work, costing him more in gas taxes; Debbie doesn't drink or smoke, so she saves on so-called sin taxes. That's not to mention the countless other ways they can incur, avoid or defer taxes.

There are 50 states in the union and, it seems, 50 formulas for collecting taxes. Only seven states -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- don't assess income taxes, and New Hampshire and Tennessee have income taxes on just dividends and interest. These states balance the lack of income taxes with other taxes, notably sales taxes.

Five states have no sales tax -- Alaska, Montana, Delaware, New Hampshire and Oregon. For 2007, the state with the lowest sales tax rate is Colorado (2.9%); the highest is California (7.25%). Among the sales-tax majority, every state but one (Illinois) exempts prescription drugs, while 31 states exempt food. Counties and municipalities can add their own sales taxes, so comparisons are difficult between states. To find the sales tax in a specific ZIP code, click here.

Gasoline and diesel are taxed at different rates in most states. Besides the straight excise tax, which varies from a low of 4 cents a gallon in Florida to a high of 36 cents in Washington, most states add other gas taxes that increase the toll. The state with the greatest total state tax on gasoline is California (45.5 cents per gallon); the lowest is Alaska (8 cents). Those are levied on top of the federal tax on gasoline, unchanged from last year at 18.4 cents per gallon.

On average, the combined state and federal gasoline tax is 45.8 cents across the nation, making the United States one of the least expensive places in the Western world to buy fuel. In Europe, government taxes make up about 60% of the price of fuel, on average, according to The Christian Science Monitor. According to the American Petroleum Institute, motorists in the western U.S. pay the most in fuel excise taxes (53.9 cents), while those in the South pay the least (38.4 cents).

Continued: States lead way on tobacco taxes

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