WASHINGTON – In fiscal 2008, Rhode Island had the nation’s 10th highest tax burden as a percentage of personal income, down from ninth highest in fiscal 2007 and fifth the year before, based on a special report released today by the Tax Foundation.

Besides tax-burden estimates for the fiscal year ended June 30, the special report also includes historical tax-burden data going back to 1977. “For each state, we calculate the total amount paid by the residents in taxes, and we divide those taxes by the total income,” senior economist Gerald Prante wrote in the Tax Foundation analysis.

Ocean State residents paid an average of 10.2 percent of their income in state and local taxes in the fiscal year just ended, down from 10.5 percent in FY 2007 and 10.9 percent in FY 2006, the study found. In its State Business Tax Climate Index last fall, the policy group rated Rhode Island last among the 50 states, and Massachusetts 34th, in the “business friendliness” of their tax systems. (READ MORE)

By comparison, the state and local tax burden nationwide fell to 9.7 percent of U.S. residents’ income – down from 9.9 percent in fiscal 2007 and 2006 – as income grew faster than tax collections.

New Jersey residents topped the charts for the third year in a row, with a fiscal 2008 state and local tax burden of 11.8 percent, down slightly from last year’s 11.9 percent. New York (11.7 percent) and Connecticut (11.1 percent) were close behind, at No. 2 and No. 3 respectively, spots they have held since FY 2006. Filling out the Top 10 were Maryland (10.8 percent), Hawaii (10.6 percent), California (10.5 percent), Ohio (10.4 percent), Vermont (10.3 percent) and No. 9 Wisconsin (10.2 percent).

Massachusetts was No. 23 for a third consecutive year with a state and local tax burden of 9.5 percent, down from 9.8 percent in FY 2007 and 9.9 percent in FY 2006.

The nation’s lightest tax burden in the fiscal year just ended was in Alaska, where state and local taxes consumed an average 6.4 percent of residents’ income. It “is the only state where residents actually pay more to out-of-state governments than to their own,” Prante noted. Taxpayers there face no state sales tax; instead, they receive annual payments from Alaska’s oil-tax reserve fund.

Filling out the bottom 10 states were Wyoming (7.0 percent), Florida (7.4 percent), New Hampshire(7.6 percent), South Dakota (7.9 percent), Tennessee (8.3 percent), Texas (8.4 percent), Louisiana (8.4 percent) and 10th-lowest Arizona (8.5 percent).

The Tax Foundation’s rankings are based on data from the U.S. Bureau of Economic Analysis, the U.S. Census Bureau, the Council on State Taxation, the Travel Industry Association and the U.S. Department of Energy, among other sources.

Its reports “are sometimes confused with rankings based on the Census Bureau’s tallies of state and local tax collections,” such as the R.I. Department of Revenue’s June report ranking the Ocean State 11th nationwide for its state and local tax burden in FY 2006. (READ MORE)

The chief difference, the policy group said, is in the treatment of out-of-state tax payments.

“When state and local governments collect large amounts from non-residents – whether as tourists, commuters, businesses or property owners – Census counts those payments in the collections of the taxing state; the Tax Foundation study counts them in the residential state of the taxpayer,” the policy group said. For instance, taxes paid to another state by a vacationing Rhode Islander would be counted against Rhode Island in the Tax Foundation study, but would count against the taxing state in the Census Bureau statistics.

“The goal is to focus not on the tax collectors but on the taxpayers,” Prante wrote. “That is, we answer the question: ‘What percentage of their income are the residents of this state paying in state and local taxes?’ We are not trying to answer the question: ‘How much money have state and local governments collected?’”

States “vary in their ability to export their tax burden. … However, many states have made a conscious effort for years to raise taxes on non-residents, and that effort seems to be accelerating,” he said. “In fact, many campaigns for tax-raising legislation in the last several years have explicitly advertised the preponderance of non-voting, non-resident payers as a reason for resident voters to accept the tax.

“This beggar-thy-neighbor effort has been mostly legislative, exemplified by a wave of tax hikes on tourism. … States and localities have also enacted separate, higher tax rates for non-residents’ property and income,” Prante said. “The effort to soak non-residents has also been administrative, as departments of revenue have pursued non-resident income tax revenue from individuals and corporations with far more zeal than in years past.”

The Tax Foundation, founded in 1937, is a nonprofit, nonpartisan tax research organization whose goals include the promotion of simplicity, transparency, stability and neutrality in U.S. tax policies. Additional information – which after 10 a.m. will include the full text of the new Tax Foundation Special Report No. 163, “State-Local Tax Burdens Dip as Income Growth Outpaces Tax Growth” – is available at www.TaxFoundation.org.