Personal Income Tax

• Author: Richard Leiter
• Pages: 791-799

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If you live in Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming, you may not be aware that most of the rest of the country has to file two tax returns every April. Every other state, aside from these lucky seven, requires income tax—over and above federal taxes—from its citizens.

Deductions and exemptions available to the taxpayer can be very detailed and vary greatly from state to state. Because of their number, no attempt has been made here to list them. “As an example, Missouri claims one of the more unusual deductions: fair market value of literary, musical, scholarly, or artistic composition contributed by creator to nonprofit tax-exempt entity (with written appraisal attached), less federal deduction taken” (Source, State and Local Taxes, vol. 2. RIA). The nature of various deductions can change fairly quickly to respond to various social, historical, and political events. For example, for several years starting in the early 1990s, there was a provision to exempt all income of estates of individuals who perished in Operations Desert Storm and Desert Shield.

Even though the trend for the last several years has been to lower taxes, an occasional state has dared to raise their rates. For example, until recently North Dakota had led the states with a rate of 12 percent on income over $50,000, but their rate now tops out at 5.54 percent of income over $319,000! Most rates in the higher brackets are in the 5 percent to 8 percent range. However, Rhode Island and Vermont tax at rates of up to 25% and 24%, respectively, but the percentages are applied to the total federal tax liability and are not applied directly to the taxpayer’s income.

Ohio ($200,000), Wisconsin ($183,210), New Jersey ($500,000), and North Dakota ($336,550) have the highest income brackets. The intent here is clearly to have the rich pay taxes at higher rates and shoulder more of the load for maintaining the revenue base; a pragmatic view, however, is that higher brackets protect those in the middle from the higher rates at the top. Most states have an upper bracket that is below $60,000.

Six states (and the District of Columbia) have had their income tax schemes challenged in court: Delaware, Illinois, Michigan, Nebraska, Ohio, and Oklahoma. All of these tax codes have been “certified” constitutional by federal courts.

The chart in this chapter deals only with the general principles of state personal income tax. The tax tables are accurate but are very much consolidated and generalized in order to give the reader a broad basis for comparison. The rates listed are, for the most part, for married couples filing jointly or for heads of households. Where this is not the case, the rate is noted. Slightly different rates and tables will apply in most states for couples filing separately or for single individuals. Also, there are countless deductions and exemptions available to the taxpayer that are similar to those available in the federal income tax code. Included here are only the general deductions and exemptions for determining state taxable income. See your state codes or the code of the state in which you are interested for detailed information.

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Table 50: Personal Income Tax
State	Code Section	Who is Required to File	Rate	Federal Income Tax Deductible	Federal Income Used as Basis
ALABAMA	40-18-1, et seq.	Resident natural persons, fiduciaries, estates and trusts, and nonresidents receiving income from property owned or business transacted in the state	First $500, 2%; Next $2,500, 4%; Over $3,000, 5% (for a single person)	Yes	Yes
ALASKA	Income tax repealed 1/1/79, Alaska Laws 1980, 2d Sp. Sess. §9, ch. 2	Individual may file at his or her option to obtain certain tax credits for political donations or expenses for household and child care necessary for employment. Credit allowed only if legislature appropriates money. (§43.20.013)	N/A	N/A	N/A
ARIZONA	43-1011, et seq.	All Arizona residents and nonresidents that derive income from activity or ownership of property within the state; Partnerships are not taxable	First $20,000, 2.59%; Next $29,999, 2.88%; Next $49,999, 3.36%; Next $199,999, 4.24%; Over $300,000, 4.54%	No	Yes
ARKANSAS	26-51-201, et seq.	Resident individuals, estates and trusts, and nonresidents deriving income from local property or activity; Partnerships are not taxable	First $3,599, 1%; Next $3,000, 2.5%; Next $3,000, 3.5%; Next $6,000, 4.5%; Next $10,000, 6%; $30,100 or over, 7%; general rate for all taxpayers; special reduced rates available for low income	No	No
CALIFORNIA	REV. & TAX CODE §§17041, et seq.	Resident persons, including estates and trusts; nonresidents and part-year residents are liable for prorata share	First $13,243 1%; Next $18,152, 2%; Next $18,156, 4%; Next $19,236, 6%; Next $18,146, 8%; Over $86,934, 9.3%	No	Yes
COLORADO	39-22-104, et seq.	Every individual, estate, and trust that is required to file federal return; non- and part-year residents are liable for pro-rata share; Partnerships are not subject to tax	4.63% of federal taxable income; general rate for all taxpayers; alternative rates may apply	No	Yes
CONNECTICUT	51, et seq., act 3, Laws (1991), 1st sp. sess. Act 160, Law 1995 §12-700, et seq.	Each resident individual, trust, and estate with Connecticut taxable income; Nonresident individuals, estates, and trusts on Connecticut income	First $16,000, 3%; 5% above $16,000	No	Yes

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State	Code Section	Who is Required to File	Rate	Federal Income Tax Deductible	Federal Income Used as Basis
DELAWARE	Tit. 30 §1102, et seq.	Individuals, estates, and trusts with Delaware taxable income; Residents and nonresidents of Wilmington are subject to an additional tax of 1.25% on all wages, salaries, commissions, and net profit	First $2,000, no tax; Next $3,000, 2.2%; Next $5,000, 3.9%; Next $10,000, 4.8% Next $5,000, 5.2% Next $35,000, 5.55%; Over $60,000, 5.95%	No	Yes
DISTRICT OF COLUMBIA	47-1806.01,

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