States Raising Tax Rates

State revenues are down. Many are running deficits. To compensate, some are raising taxes, largely through increases in personal income rates (mostly at higher income levels) and excise taxes (i.e., special taxes on items such as tobacco, alcohol, gasoline, hotel room fees, airport fees, etc.). Some are temporary, or at least are being called temporary right now, and some are permanent.

According to the Tax Foundation, 10 states have increased cigarette taxes (an excise tax) in the first half of 2009: Arkansas, Florida, Hawaii, Kentucky, Mississippi, New Hampshire, New Jersey, Rhode Island, Vermont and Wisconsin. Rhode Island passed New York, New Jersey and Massachusetts this year to take the number one spot with a tax of $3.46 per pack. Rounding out the top 4 are New York at $2.75, New Jersey at $2.70, Hawaii at $2.60, and Wisconsin at $2.52.

Massachusetts removed its sales tax exemption for beer, wine, and spirits, subjecting it to its new 6.25% rate. New York increased its beer excise tax from 11 to 14 cents per gallon and its wine excise tax from just under 19 cents per gallon to 30 cents per gallon. New Jersey increased taxes on wine and spirits, estimated to raise the cost of an average bottle of wine by around 3.5 cents.

Four states have increased their sales tax rates this year:

California (7.25% to 8.25%)

Massachusetts (from 5% to 6.25%)

Minnesota (from 6.5% to 6.875%)

Nevada (from 6.5% to 6.85%)

Seven states have raised personal income tax rates. California added 0.25% to each income tax bracket, retroactive to January 1 and expiring on December 31, 2010. Delaware increased the state’s top income tax rate by one percentage point, from 5.95% to 6.95%. Hawaii added three new income tax rates on high-income earners, retroactive to January 1: 9% on income over $150,000, 10% on income over $175,000, and 11% on income over $200,000 for single filers. In a ranking of states with the highest top statutory income tax rates, Hawaii now ties Oregon for first place. New Jersey enacted temporary income tax increases on individuals making over $400,000 — 8% on income over $400,000, 10.25% on income over $500,000, and 10.75% on income over one million. New York added two income tax brackets, 7.85% on income over $200,000 and 8.97% on income over $500,000. The new rates are temporary and will be in effect for three years. Oregon enacted two new income tax rates on high-income earners: 10.8% on income over $125,000 and 11% on income over $250,000 for single filers. Wisconsin legislators added one high-income tax rate to their rate structure — 7.75% on income over $225,000 for single filers. Notably, two states actually lowered their income tax rates this year — North Dakota and Vermont.

Only Oregon raised its corporate income tax rates, from 6.6% to 7.9% on corporate income that exceeds $250,000. Kansas actually reduced its corporate rate a bit, from 7.1% to 7.05% on income over $50K.

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