STATE INDIVIDUAL INCOME TAX COMPARISONS

REQUESTED BY

HOUSE TAX POLICY REVIEW COMMITTEE

By

Gordon O. Shuford

Economic Research

South Carolina Revenue and Fiscal Affairs Office

1000 Assembly Street

Rembert Dennis Building, Suite 402

Columbia, SC 29201

(803) 734-2265

www.rfa.sc.gov

STATE INDIVIDUAL INCOME TAX COMPARISONS

2012 Report

http://rfa.sc.gov/econ/reports/econanalysis

2

MAJOR FINDINGS

• Forty-one states impose a broad based individual income tax.

• South Carolina has a relatively low individual income tax burden. Tax burden was the tenth lowest nationwide in tax year 2012.

3

4Sources: State and Local Government Finances by Level of Government and by State: 2102, US Census Bureau and Internal Revenue Service, Statistics of Income Division, Individual Master File System, December 2013. Calculations by the S.C. Revenue and Fiscal Affairs Office.

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

New YorkOregon

MarylandKentuckyDelawareCalifornia

MinnesotaConnecticut

West VirginiaMassachusetts

OhioNorth Carolina

MaineWisconsin

HawaiiIndiana

PennsylvaniaIllinois

VirginiaArkansas

IowaMissouri

KansasUtah

IdahoMontana

Rhode IslandNebraskaVermontGeorgia

New JerseySouth Carolina

AlabamaOklahoma

ColoradoMichigan

MississippiNew Mexico

LouisianaArizona

North Dakota

STATE AVERAGE EFFECTIVE INDIVIDUAL INCOME TAX RATESTax Year 2012

MAJOR FINDINGS Three Contributing Factors

• South Carolina taxpayers have lower incomes compared to taxpayers in other states.

• Tax deductions, exemptions, and brackets vary. South Carolina allows taxpayers to retain all federal deductions and exemptions and has a zero tax bracket.

• State tax rates vary widely. Top marginal tax rates ranged from 3.07% to 11%.

5

LOWER FEDERAL ADJUSTED GROSS

INCOMES

6

7Source: Internal Revenue Service, Statistics of Income Division, Individual Master File System, December 2013. Calculations by the S.C. Revenue and Fiscal Affairs Office.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

MISSISSIPPIARKANSAS

FLORIDATENNESSEE

NEW MEXICOSOUTH CAROLINA

KENTUCKYIDAHO

ALABAMAWEST VIRGINIA

NEVADAMAINE

MONTANAGEORGIA

NORTH CAROLINAOHIO

LOUISIANAOKLAHOMA

MISSOURIINDIANA

SOUTH DAKOTAARIZONA

VERMONTMICHIGAN

TEXASOREGON

HAWAIIUTAH

WISCONSINKANSAS

US AverageNEBRASKA

PENNSYLVANIARHODE ISLAND

IOWANEW YORKWYOMING

CALIFORNIAILLINOIS

COLORADOMINNESOTA

NORTH DAKOTAWASHINGTON

NEW HAMPSHIREALASKA

VIRGINIAMASSACHUSETTS

MARYLANDNEW JERSEY

CONNECTICUTDELAWARE

TAX YEAR 2012 PERCENTAGE OF FEDERAL RETURNS UNDER $50,000 OF AGIBy State

8Source: Internal Revenue Service, Statistics of Income Division, Individual Master File System, December 2013. Calculations by the S. C. Revenue and Fiscal Affairs Office.

0% 2% 4% 6% 8% 10% 12% 14% 16%

DELAWARECONNECTICUT

NEW JERSEYMASSACHUSETTS

VIRGINIAMARYLANDCALIFORNIA

NEW YORKNORTH DAKOTA

COLORADOILLINOIS

WASHINGTONMINNESOTA

NEW HAMPSHIRETEXAS

US AverageALASKA

PENNSYLVANIAKANSAS

RHODE ISLANDGEORGIAFLORIDA

NEBRASKAOREGON

LOUISIANAARIZONA

WYOMINGNORTH CAROLINA

SOUTH DAKOTAOKLAHOMA

IOWAUTAH

MICHIGANVERMONT

HAWAIIMISSOURI

TENNESSEEWISCONSIN

NEVADAOHIO

MONTANASOUTH CAROLINA

ALABAMAINDIANA

MAINEARKANSAS

NEW MEXICOIDAHO

KENTUCKYMISSISSIPPI

WEST VIRGINIA

TAX YEAR 2012 PERCENTAGE OF FEDERAL RETURNS OVER $200,000 OF AGIBy State

9Source: Internal Revenue Service, Statistics of Income Division, Tax Year 2012. http://www.irs.gov/uac/SOI-Tax-Stats-Historic-Table-2 RFA: GOS: 09/07/16.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

South Carolina United States

FEDERAL ADJUSTED GROSS INCOME COMPONENTSAs a Percentage of Total Federal Adjusted Gross Income

Retirement Income

Investment Income

Business and PartnershipIncome

Salaries & Wages

10Source: Internal Revenue Service, Statistics of Income Division, Tax Year 2012. http://www.irs.gov/uac/SOI-Tax-Stats-Historic-Table-2 RFA: GOS: 09/07/16.

$35,245

$7,883

$4,692 $3,672

$43,463

$7,289 $8,130

$5,825

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

Salaries & Wages Retirement Income Investment Income Business and PartnershipIncome

FEDERAL ADJUSTED GROSS INCOME COMPONENTS Average Per Return

South Carolina United States

TAX STRUCTURE

11

12

ADJUSTED GROSS INCOME AND TAXABLE INCOME

Married Filing Jointly Family of Four for Tax Year 2014

South Carolina Georgia North Carolina

Adjusted Gross Income $50,000 $50,000 $50,000

Less

Standard Deduction ($12,400) ($3,000) ($15,000)

Personal Exemptions ($15,800) ($13,400) $0

Equals

Taxable Income $21,800 $33,600 $35,000

Source: Tax rate and brackets for each state were obtained from 2012 state tax forms. Data compiled by the S.C. Revenue and Fiscal Affairs Office. GOS/09/09/16

13Source: Information on Deductions, exemptions, and tax brackets for each state were obtained from 2014 state tax forms.

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000

MaineRhode Island

South CarolinaIdaho

MinnesotaNew Mexico

North DakotaVermontColorado

UtahConnecticut

WisconsinArizona

LouisianaNebraska

MississippiMissouri

MontanaNew York

US AverageMaryland

GeorgiaOklahomaMichiganDelawareCalifornia

North CarolinaKansas

AlabamaOregon

MassachusettsVirginia

HawaiiOhio

IllinoisWest Virginia

IndianaIowa

ArkansasNew Jersey

KentuckyPennsylvania

TAXABLE INCOME REDUCTIONS BY STATE IN TAX YEAR 2014Combined Standard Deduction, Personal Exemptions, and Zero Tax Brackets

For a Married Filing Joint Return with Two Dependents

For states that allow a personal credit rather than a personal exemption, RFA calculates an exemption amount by dividing the

allowable personal credit by the highest marginal tax rate. This may overstate the value of the calculated personal exemption for

taxpayers with lower incomes.

14Source: S.C. Department of Revenue federal and state individual income tax return sample; Data compiled by S.C. Revenue and Fiscal Affairs. – LJ/09/12/16

$26,153

$11,026

$4,208 $3,857

$2,736$1,816

$1,323

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Std

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Item

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Ded

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Per

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Age

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FEDERAL AND STATE DEDUCTIONS FROM SOUTH CAROLINA INCOMETax Year 2014

Federal Deductions South Carolina Deductions

MARGINAL TAX RATES AND

EFFECTIVE TAX RATES

15

16

TAX LIABILITY CALCULATIONMarried Filing Jointly Family of Four

With Adjusted Gross Income of $50,000 in Tax Year 2014

South Carolina Georgia North Carolina

Taxable Income: $21,800 $33,600 $35,000

Tax RateTax

BracketsTax

Liability Tax RateTax

BracketsTax

Liability Tax RateTax

BracketsTax

Liability

0% $2,880 $0 1% $1,000 $10 5.8% NA $2,030

3% $5,760 $86 2% $3,000 $40

4% $8,640 $115 3% $5,000 $60

5% $11,520 $144 4% $7,000 $80

6% $14,400 $173 5% $10,000 $150

7% Over $518 6% Over $1,416

Total $1,036 $1,756 $2,030

Effective Tax Rate 2.1% 3.5% 4.1%

Source: Tax rate and brackets for each state were obtained from 2012 state tax forms. Data compiled by the S.C. Revenue and Fiscal Affairs Office. GOS/09/09/16

17Source: Tax rate and brackets for each state were obtained from 2012 state tax forms. Data compiled by the S.C. Revenue and Fiscal Affairs Office. GOS/09/09/16

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%N

ew Y

ork

Ore

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Cal

ifo

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Min

nes

ota

No

rth

Car

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Mai

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Wis

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Haw

aii

Ark

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Iow

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Idah

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Ver

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New

Jer

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Sou

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States Sorted By Effective Tax Rate

STATES WITH HIGHER MARGINAL TAX RATES & HIGHER EFFECTIVE RATESRelative to South Carolina

Highest Tax Rate Effective Tax Rate

18Source: Tax rate and brackets for each state were obtained from 2012 state tax forms. Data compiled by the S.C. Revenue and Fiscal Affairs Office. GOS/09/09/16

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%M

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Ken

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Del

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Co

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Wes

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Mas

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Oh

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Ind

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Pen

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Illin

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Vir

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Kan

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Uta

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Mo

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Rh

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Neb

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Geo

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Sou

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States Sorted By Effective Tax Rate

STATES WITH LOWER MARGINAL TAX RATES & HIGHER EFFECTIVE RATESRelative to South Carolina

Highest Tax Rate Effective Tax Rate

19Source: Tax rate and brackets for each state were obtained from 2012 state tax forms. Data compiled by the S.C. Revenue and Fiscal Affairs Office. GOS/09/09/16

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%So

uth

Car

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Ala

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Okl

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ma

Co

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Mic

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Mis

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New

Mex

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Lou

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Ari

zon

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No

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Dak

ota

States Sorted By Effective Tax Rate

STATES WITH LOWER MARGINAL TAX RATES & LOWER EFFECTIVE RATESRelative to South Carolina

Highest Tax Rate Effective Tax Rate

20Source: Tax rate and brackets for each state were obtained from 2012 state tax forms. Data compiled by the S.C. Revenue and Fiscal Affairs Office. GOS/09/09/16

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Massachusetts Indiana Pennsylvania Illinois Utah South Carolina Colorado Michigan

States Sorted By Effective Tax Rate

STATES WITH A FLAT INCOME TAX RATECompared to South Carolina’s Marginal and Effective Tax Rates

Highest Tax Rate Effective Tax Rate

QUESTIONS

21