(CNN) — States start 2023 with a series of tax changes for their residents and businesses.
According to Tax Foundation, right-leaning, significant changes went into effect in some 38 states on January 1, mostly net tax cuts. They lowered personal and corporate income tax rates, exempted more items from sales tax, and reduced the amount of taxable retirement or military pension income.
“We are at the culmination of two years of important tax cuts across the country in response to historically high revenues and states’ desire to remain competitive in a much more mobile environment,” said Jared Walczak, vice president of State Projects for the Tax Foundation.
Los states have benefited of strong economic growth and of the federal covid-19 relief funds that have reached them, their residents and their businesses. This fueled increased income and sales tax collections, leaving many states with large surpluses. Some states brought this abundance to residents through one-off measures, such as sales o vacation while others adopted permanent tax cuts.
However, several states raised certain taxes, including those on gasoline, electric vehicles and recreational marijuana, by 2023. One state, Massachusetts, added a tax on millionaires.
And while states have built up sizable reserve funds to cushion an economic downturn, some they might start to feel pressured if your income is reduced.
“States that cut their tax rates are going to have to face a more severe reduction in that (revenue) growth than other states,” said Emily Mandel, economist at Moody’s Analytics.
Below are the state taxes that are reduced
Taxes on the income of natural persons: Ten states, including Arizona, Idaho, Indiana, Iowa, Kentucky, Mississippi, Missouri, Nebraska, New York and North Carolina, cut individual income tax rates by 2023, according to the Tax Foundation. New Hampshire lowered its rate only on interest and dividend income.
Arizona, Idaho, and Mississippi switched from tiered rates to flat taxes. Arizona applied its 2.5% rate a year ahead of schedule. Idaho moved to a flat rate of 5.8%, down from its previous top marginal rate of 6%.
And Mississippi enacted a flat 5% tax rate. The fixed rate will be gradually reduced to 4% in 2026.
Five states (Alabama, Delaware, Iowa, Rhode Island, and Nebraska) exempted all or part of their residents’ military retirement or pension income. Iowa and Nebraska also eased their inheritance taxes.
Business income tax: Four states lowered their corporate income tax rates for this year, according to the Tax Foundation: Arkansas, Nebraska, New Hampshire and Pennsylvania.
In Pennsylvania, the rate dropped from 9.99% to 8.99%, one of the highest in the country. It is expected to be progressively reduced to 4.99% in 2031.
For its part, Oklahoma became the first state to make permanent a measure that allows companies to deduct the full cost of certain business investments in machinery and equipment during the first year. The federal depreciation allowance is scheduled to begin phasing out this year due to a provision in the 2017 Republican tax cuts.
sales tax: Virginia now exempts groceries from the state sales tax, while Kansas has begun lowering its grocery sales tax, which will be eliminated in 2025, according to the Tax Foundation.
Colorado and Iowa no longer apply sales taxes on diapers and menstrual products, while Virginia exempts certain personal hygiene items, including menstrual products.
These are the state taxes that go up
Taxes on the income of natural persons: Massachusetts voters narrowly approved a tax on millionaires at the polls in November. The measure, which went into effect this year, adds a 4% surcharge on income above $1 million to the current 5% personal income tax rate. The funds will go towards education, roads, bridges and public transport.
Sales Taxes and Fees: In Kentucky, nearly three dozen additional services are now subject to the 6% state sales tax, according to the state Department of Revenue. These include recreational camp tuition, personal fitness, interior decorating, clothing and jewelry repair, website design and hosting, parking, cosmetic surgery and body modification, space rental, and supervision of security systems, among others.
The state also imposed a 6% excise tax on carpooling, car rentals, and limousine and taxi services. In addition, it created a special tax on electric vehicle power distribution, as well as registration and renewal fees for owners of electric and hybrid vehicles.
Colorado has implemented a state fee of 10 cents for each recycled paper bag or single-use plastic bag that stores provide to customers, according to the state Department of Revenue. Starting this year, stores will no longer be able to distribute plastic bags.
New Jersey increased the excise tax on recreational marijuana from $1.10 to $1.52 per ounce.
And Missouri now requires out-of-state businesses with more than $100,000 in annual sales in the entity to collect state and local taxes. It is the latest state with a sales tax to put this requirement into effect.
gasoline taxes: Five states (Florida, Illinois, Michigan, North Carolina and Utah) raised their taxes on gasoline, either by indexing for inflation or by automatic adjustments tied to fuel prices, according to the Tax Foundation.
On the other hand, in New York and Connecticut vacation taxes ended about gasoline.
The states with the highest and lowest taxes in the United States
This classification is made according to the tax burden of each state, what is understood as state and local taxes paid by residents of a state divided by that state’s share of the net national product.
In accordance with the most recent report from the Tax Foundation Regarding the taxes to be paid per person, the 10 states with the highest tax rates are:
1. New York (15.9%)
2. Connecticut (15,4 %)
3. Hawai (14,1 %)
4. Vermont (13,6 %)
5. California (13,5 %);
6. New Jersey (13.2%)
7. Illinois (12,9 %)
8. Virginia (12,5 %)
9. Delaware (12,4 %)
10. Maine (12,4 %)
The states with the lowest tax rates are
1. Alaska (4.6%)
2. Wyoming (7,5 %)
3. Tennessee (7,6 %)
4. Dakota del Sur (8.4%)
5. Michigan (8,6 %)
6. Texas (8,6 %)
7. North Dakota (8.8%)
8. Georgia (8,9 %)
9. South Carolina (8.9%)
10. Oklahoma (9.0%)
2023-01-26 08:00:00
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