State budgets have been awash in cash since 2021. Federal relief funds distributed at the start of the pandemic cushioned state coffers to offset losses from COVID-19 economic shutdowns. As federal pandemic aid runs out, states must rely on their own revenue streams to fund their budgets.
Nationally, 38% of total tax collections comes from personal income taxes. The next largest category is general sales and gross receipts taxes, which averages 29% of total collections. Those numbers vary greatly across the states because each state has its own unique tax structures, with some states relying more heavily on one type of tax than others.
Nine states do not tax personal income. Seven of them—Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming—rely most heavily on sales and use taxes. In FY 22, almost 69% of Florida’s tax collections and 62% of South Dakota’s came from general sales and gross receipts taxes. Alaska, the eighth non-income-tax state, collected 64% of its total tax collections from severance taxes on the extraction of natural resources such as oil and natural gas. New Hampshire, the ninth non-income-tax state, has a business profit tax which is categorized as a corporate income tax, which makes up 27% of total tax collections.
Oregon does not have a general sales tax. Accordingly, the state relies most heavily on income taxes. Approximately 62% of its total tax collections come from income taxes. Alaska, Delaware, Montana, and New Hampshire also do not have a general sales tax.
States also levy corporate income taxes, license taxes, property taxes and other taxes which include severance and estate taxes. These taxes tend to be a smaller share of state collections when compared to income or sales taxes. However, for some states, these other taxes can be significant to their tax collections. For instance, Vermont and the District of Columbia collect 28% of their total collections from property taxes while the national average is just 2% because property taxes are usually collected at the local level.
States’ tax reliance has changed over time. In the second half of the 20th century, collections from personal income taxes grew as a share of total tax collections. Today, state reliance on income taxes is decreasing as a greater number of states work to lower income tax rates.