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Vermont Tax StudyVolume II
Analyzing and ComparingTax Levels Using the Representative
Individual/Firm Approach
Purpose of Study• Review collective impact of 10 years worth of tax law
changes
• Compare Vermont’s tax structure and liability levels toother competitive states
• Dispel and/or confirm beliefs about Vermont tax levels(2006 Tax Foundation Ranked VT #1 with the highesttax burden per capita in the country)
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10-Year Update of the 1996 Study• Volume I is a comparative analysis using census and
other data
• Volume II uses case studies to compare individual andcorporate tax levels
• Vermont is compared to 11 other states: New England(ME, NH, NY, MA, CT) plus Florida, Minnesota, NorthCarolina, Washington, Oregon and Wisconsin
• 2005 tax year data used throughout the study
Individual Case Studies
Estimate of total tax liability includes
• Income Taxes 312 personal income tax returnscompleted (24 federal and 288 state returns)
• Sales Taxes (including meals and gasoline whereapplicable).
• Gasoline Excise Tax
• Motor vehicle license and registration fees
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Individual Cases List
4MFJ24,981#3
1Single24,500#2
3MFJ24,135#7
1Single23,862#24
1Single19,429#17
2MFJ17,504#21
2MFJ13,200#19
2HOH13,200#13
2MFJ13,200#12
1Single9,800#16
1Single9,800#1
0Single1,868#4
ExemptStatusAGICase #
4MFJ1,066,309#23
2HOH715,868#6
5MFJ357,934#22
4MFJ109,320#5
1Single88,011#14
4MFJ80,743#9
1Single63,894#10
4MFJ50,372#8
4HOH50,000#15
1Single45,624#18
1MFS45,000#11
2MFJ26,810#20
ExemptStatusAGICase #
Tax Liability Range and Vermont Rank for Individual Case Studies
(1,000)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
#13 #12 #1 #16 #4 #19 #21 #7 #3 #24 #20 #17 #2 #18 #15 #8 #11 #10 #9 #14 #5
Case Number
Tax L
iabili
ty
Vermont
The range of total tax liability in each of the comparison states is depicted with a vertical line,and Vermont’s relative ranking is shown by the green square.
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Summary FindingsIndividual Cases
• Vermont has a highly progressive overall state taxstructure with relatively low taxes on lower-incometaxpayers; relatively higher taxes on upper-incometaxpayers.
• Driving the results is the individual income tax, whichcomprises the majority of the overall tax liabilitycalculated for most taxpayers.
• Many of the comparison states have progressive statetax structures, Vermont’s tends to be the mostprogressive.
• Difficult to draw unambiguous conclusions whencomparing state and local taxation, illustrated by outliersthat contradict the overall conclusions.
Tax Liability Rank, Select Four States
0
2
4
6
8
10
12
228
266
276
290
311
313
672
759
782
1,0
42
1,0
91
1,1
00
1,4
14
1,9
33
2,1
41
2,4
29
2,7
08
4,0
18
4,3
63
5,1
15
6,5
71
21,6
75
41,1
38
66,4
66
M edian T ax L iab ility for E ac h Cas e
Tota
l T
ax R
ank
VT W A
F L M E
Ascending line indicates progressivity; descending line indicates regressivity
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Tax Liability Ranks, New England States
0
2
4
6
8
10
12
Median Tax Liability for Each Case
VT
CT
MA
ME
NH
NY
Single Filing Status, Total Tax Liability Ranked by AGI
0
1,000
2,000
3,000
4,000
5,000
6,000
1,868 9,800 9,800 19,429 23,862 24,500 45,624 63,894 88,011
#4 #1 #16 #17 #24 #2 #18 #10 #14
Adjusted Gross Income
Tax L
iabili
ty
VT WA
FL NH
Series2
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Married Filing Jointly*, Four or More Exemptions –Total Tax Liability Ranked by AGI
0
5,000
10,000
15,000
20,000
25,000
24,981 50,000 50,372 80,743 109,320 357,934 1,066,309
#3 #15 #8 #9 #5 #22 #23
Adjusted Gross Income
Tax L
iabili
ty
VT WA
FL NH
* Case #22 is a head of household
Representative Case #8
$1,426
$2,205
$2,757
$4,424
$3,968
$3,711 $3,642
$3,311 $3,265 $3,205
$2,860
$2,806
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
OR NC WI MN ME MA NY CT WA VT FL NH
Sales & Use
State Income Tax
Other
Federal Income Tax
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Case #8 Estimated State Income Taxes
$3,007
$1,826
$1,617$1,554 $1,543
$989
$0 $0 $0
$848
$919
$1,352
0
500
1,000
1,500
2,000
2,500
3,000
3,500
OR NC MA WI MN ME NY CT VT WA FL NH
Summary Findings Continued• Income Tax Liability – Income tax levels for Vermont
taxpayers ranked in the middle or lower half among thecomparison states for nearly all of the case studies.
• Sales and Use Tax Liability – Vermont ranked ninthamong the 12 comparison states in sales and use taxliability, up from 10th a decade ago.
• Selected Other Taxes –Vermont has the highest taxeson served meals and among the highest motor vehiclelicense and registration fees. Vermont has the secondlowest gasoline excise tax rate of the comparison states.
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Corporate Case Studies
Brief Description
Claims a federal qualifiedproduction activities deduction(QPAI)
Has a net operating loss (NOL)Claims federal bonus depreciation
Taxable income = $1.1 million9.75% marginal rate bracket inVermont
Taxable income = $22,3158.1% marginal rate bracket inVermont
Multi-state corporation; 25% ofbusiness in each of 4 statesSingle state corporation
Corporate Case Study BCorporate Case Study A
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Corporate Case Study A$3,993
$3,187
$2,657$2,577
$2,231 $2,220$2,169
$1,138
$952 $944
$637
$1,903
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
WA MA MN NH NY VT WI NC ME FL OR CT
State
Ta
x L
iab
ilit
y
Federal Tax = $3,347State Tax Range = $3,356
Corporate Case Study B
$29,788
$25,875 $25,505
$23,064
$21,258 $20,901$20,241
$18,064
$14,534
$33,285
$33,785
$21,258
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
NH MA MN VT ME WI CT NY NC WA FL OR
State
Ta
x L
iab
ilit
y
Federal Tax = $385,475State Tax Range = $19,251
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Summary FindingsCorporate Cases
• The rankings among the states for both caseshad some unpredictable results.
• Corporate income tax liability seems lessconsistent between businesses within a state,and may be more dependent on specific taxpolicies.
• Vermont corporate income tax was significantlyrestructured beginning in tax year 2006.
Criticism and Support
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“The two most serious problems with the report are that itignores the property tax and that it only looks at 12 states.These limitations are understandable, but they stillsignificantly weaken the study.”Art Woolf, Rutland Herald
“Today’s news report about the Legislature’s new report onVermont’s tax burden – and their effort to exclude theproperty tax from the calculation – is another indication ofhow out of touch the majority controlling the Legislature iswith the day-to-day challenges of our working families andsmall businesses. The underlying argument of this report –that our taxpayers could afford to pay a little more – isdisturbing and fundamentally disrespectful to workingVermonters all across our state who are struggling to makeends meet.”Official Statement of the Governor on House Democrat’sStudy of State Tax Burden
Negative
Positive “The JFO study is helpful, but is really a detailed look at
a handful of “trees in the forest” and not a study of thelarger tax system. Case studies always add helpfulinsights on the impact of tax policy on the ground andcomparing them to other states is helpful.”
Tom Pelham, Vermont Tax Commissioner (RutlandHerald article)
“It contains important information that helps debunk themantra about VT having the highest “tax burden” in thecountry. Unlike the flawed per capita approach, the JFOstudy gets to the heart of the matter.”Doug Hoffer, High Road Vermont
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Seven Days Weekly Newspaper, October 17 – 24, 2007 Page 08A