Alaska charges a “severance” tax on oil extraction that ends up being paid by consumers of petroleum products in other states. The tax pulls in so much revenue that Alaska actually writes checks to families in the state every year. Wyoming, another resource-rich state, works the same angle—and in 2011, for the first time in several decades, it had a lower per-capita tax burden than Alaska.
“Tax exporting,” as the strategy is called, is featured in a report released by the Tax Foundation today, just in time for the federal filing deadline. It’s called, rather prosaically, Annual State-Local Tax Burden Ranking FY 2011. As usual, the tristate cluster of New York, New Jersey, and Connecticut had the highest per-capita state and local tax burden in 2011, the latest year for which figures are available.
The Tax Foundation, a nonpartisan research group, doesn’t just add up how much tax revenue states and localities raise and then divide by the population. If it did, Alaska would be way high. Staffers Liz Malm and Gerald Prante figured out who ends up actually bearing the cost of the tax. On the federal level, for example, payroll taxes are technically paid by employers, but employees end up bearing the cost because the taxes get taken out of what they would have been paid. Likewise, if you buy gasoline in San Diego, you’re helping pay Alaska’s taxes even if technically the tax is paid in Alaska.
Other states have different ways to export their tax burden. Maine and Vermont charge taxes on second homes that are largely paid by out-of-staters who live in such places as Massachusetts and Connecticut, the Tax Foundation says. Ditto for Wisconsin, which has lots of vacation homes owned by people from Illinois. The District of Columbia’s sales tax is paid by commuters from Virginia and Maryland. Florida and Nevada get scads of tax revenue from vacationers from around the country. Commuters from Connecticut and New Jersey pay income taxes to New York state and New York City.
A certain amount of tax exporting is natural and unplanned. But Malm and Prante write that it seems to be on the upswing: “Many campaigns for tax-raising legislation in the last several years have explicitly advertised the ability to push the burden of a certain tax onto non-voting, nonresident payers as a reason for resident voters to accept the tax. This beggar-thy-neighbor effort has been mostly legislative, exemplified by a wave of tax hikes on tourism: hotel rooms, rental cars, restaurant meals, and local sales taxes in resort areas. States and localities have also targeted nonresidents with higher property taxes and, in rare cases, higher income taxes.”