Appendix 4 -- Brief Highlights of State Income Tax Law

Connecticut:

The starting point for the state income tax is federal adjusted gross income.

Additions: Interest from state and local government obligations from places other than Connecticut (exempt on the federal return), interest from mutual funds derived from state/local obligations, again, other than Connecticut (exempt on the federal return), and several other minor additions peculiar to Connecticut.

Subtractions: Interest on US Government obligations, interest from mutual funds derived from US Government obligations, and adjustment for Social Security benefits, refunds of state and local taxes, and other minor additions peculiar to Connecticut.

Tax: Connecticut has its own unique tax tables. There are no credits for Dependent Care or the Earned Income Tax Credit (EITC).

Florida:

Intangible Personal Property Tax:

While there is no Florida income tax, the state does have an "Individual and Joint Intangible Personal Property Tax." It is an annual tax based upon the market value, as of January 1, of the intangible property owned by a Florida resident. Intangible personal property is defined as all personal property that is not itself valuable, but is valuable because of what it represents. The most common examples are:

-shares of common stock issued by corporations

-bonds issued by corporations, state, county, or municipal governments outside Florida.

-accounts receivable or other loans not secured by real property

-shares or units of ownership in mutual and money market funds.

The asset levels, tax rates and credits are as follows:

IndividualsJoint Returns
Asset Total< $100,000> $100,000< $200,000> $200,000
Tax Rate .001 .002 .001 .002
Credit -$20 -$120 -$40 -$240

The effect of the exclusion is to make the first $20,000 of intangible personal property tax free for individuals with less than $100,000 total value and the first $60,000 tax free for individuals with more than $100,000. For joint filers, the first $40,000 of intangible personal property is tax free for those with total value less than $200,000 and the first $120,000 is tax free for those with more than $200,000. For example, a single taxpayer with $50,000 of intangible personal property assets would calculate their tax as follows:

Asset Value $50,000
Times tax rate .001
Gross Tax $50
Less credit ($20)
Net Tax due $30

Additional Federal Income Tax:

In addition to the tax described above, the "tax burden" for some of the 20 sample cases in our study includes an additional amount for the Florida residents. This amount is the additional federal income tax that filers who itemize deductions will pay as a result of not having a deduction for state tax payments. This additional federal tax, while obviously still cheaper than paying the entire state tax bill to some other state, represents an additional burden to the middle- and high-income ta xpayer in Florida (those most likely to itemize deductions).

These cases illustrate the principle of "exportability" with regard to state income taxes. To "export" a portion of your state tax liability is to have someone else pay a part of your state tax bill. If you itemize deductions on your federal return, you are allowed to deduct payments of, or toward, state taxes. This deduction reduces your federal tax. That savings, directly attributable to your state tax payments, is like having the federal government pay a part of your state tax bill.

Massachusetts:

The federal income tax is not used for computing the state tax. The first income tax category is called "5.95% Income."

Additions: Wages, taxable pensions, business and rental income, unemployment, IRA/Keogh distributions, and bank interest less $100 ($200 for married joint) of interest from Massachusetts banks.

Subtractions: Deduction for Social Security, Medicare, Railroad, US, or Massachusetts government retirement payments up to $2,000 for each taxpayer and spouse. Deduction for child care payments up to $2,400 ($4,800 for two or more) or deduction for child dependent under age 12 of $600 (not more than one) if you did not deduct child care payments. Deduction for 50% of home rental cost, up to $2,500.

Personal Exemption Allowance: Single $2,200, Married Joint $4,400, Married Separate $2,200, Head of Household $3,400. Each additional dependent $1,000, Over 65 each=$ 700

The second income tax category is called "12% Income."

Additions: Non-Massachusetts bank interest income, dividends, and 50% of capital gain Income.

Tax: Total 5.95% & 12% income tax. Massachusetts has a "No Tax Status" for low- income levels and a "Limited Income Credit," which is its version of the EITC. Tax credits are non-refundable.

Maine:

The starting point for the state income tax is federal adjusted gross income.

Additions: Interest from state & local government obligations from places other than Maine (exempt on the federal return), interest from mutual funds derived from state/local obligations other than Maine (exempt on the federal return), and other minor additions peculiar to Maine.

Subtractions: Interest on US government obligations, interest from mutual funds derived from US government obligations, refunds of state and local taxes, Social Security benefits included in Federal AGI, and other minor additions peculiar to Maine. Modifications: Add back any itemized deduction for state tax claimed on federal return.

Personal Exemption Allowance: $2,100 each.

Tax Credits: Child care credit (25% of Federal amount), 2.7% of itemized medical expense (over 7.5% of Fed AGI) as a direct tax credit and miscellaneous credits peculiar to Maine. Tax credits are non-refundable.

Minnesota:

The starting point for the state income tax is federal adjusted gross income.

Additions: State tax payments in itemized deductions on federal return.

Subtractions: State tax refunds added to income on federal return.

Tax Credits: (included in payments section). Child care credit, working family credit (its version of EITC). Credits in excess of taxes are refunded.

New Hampshire:

Interest and Dividend Income Tax:

While there is no general New Hampshire income tax, there is an annual tax on interest and dividends.

A 5% tax is assessed on resident individuals, partnerships, or trusts earning interest and dividend income of more than $2,400 ($4,800 for joint filers) annually. Additional $1,200 exemptions are available for residents who are 65 years of age; who are blind; or, who are handicapped and unable to work, provided they have not reached their 65th birthday.

There is no filing requirement for an individual whose interest and dividend income, after deducting all interest from U.S. government obligations, is less than the exemptions outlined above.

Additional Federal Income Tax:

In addition to the tax described above, the "tax burden" for some of the 20 sample cases in our study includes an additional amount for the New Hampshire residents. This amount is the additional federal income tax that filers who itemize deductions will pay as a result of not having a deduction for state tax payments. This additional federal tax, while obviously still cheaper than paying the entire state tax bill to some other state, represents an additional burden to the middle- and high-inc ome taxpayer in New Hampshire (those most likely to itemize deductions).

These cases illustrate the principle of "exportability" with regard to state income taxes. To "export" a portion of your state tax liability is to have someone else pay a part of your state tax bill. If you itemize deductions on your federal return, you are allowed to deduct payments of, or toward, State taxes. This deduction reduces your Federal tax. That savings, directly attributable to you state tax payments, is like having the federal government pay a part of your state tax b ill.

New York:

The state income tax starts with wages and recreates federal AGI.

Additions: Interest from state and local government obligations from places other than NY (exempt on the Federal return), interest from mutual funds derived from state/local obligations other than NY (exempt on the federal return), and other minor additions peculiar to NY.

Subtractions: Interest on US government obligations, interest from mutual funds derived from US government obligations, Social Security benefit adjustment, refunds of state and local taxes, and other minor additions peculiar to NY.

Modifications: Itemized deductions are reduced by any state taxes paid, and the dependent allowance is limited to $1,000 (not including the taxpayer and spouse).

Tax Credits: Child care credit (20% of total cost) and the NY state household credit.

Tax credits are non-refundable, except for the NY state real property tax credit.

North Carolina:

The starting point for the state income tax is federal taxable income.

Additions: Interest from state & local government obligations from places other than NC (exempt on the federal return), interest from mutual funds derived from state/local obligations other than NC (exempt on the federal return), itemized deduction adjustment (add back state tax deducted), standard deduction adjustment, and the exemption adjustment.

Subtractions: Interest on US government obligations, interest from mutual funds derived from US government obligations. Social Security benefit adjustment, refunds of state and local taxes, and other minor additions peculiar to NC.

Tax credits: Child care credit, and credit for children ($60 per child up to income limits). Tax credits in excess of taxes are refunded.

Oregon:

The starting point for the state income tax is federal adjusted gross income.

Additions: Interest from state and local government obligations from places other than Oregon (exempt on the federal return), interest from mutual funds derived from state/local obligations other than Oregon (exempt on the federal return), and other minor additions peculiar to Oregon.

Subtractions: Interest on US government obligations, interest from mutual funds derived from US government obligations, Social Security benefit adjustment, refunds of state and local taxes, and other minor additions peculiar to Oregon.

Deductions: Itemized deductions less State tax payments included or lower standard deductions.

Tax Credits: $120 for each exemption (including taxpayer and spouse) and child care credit.

Washington:

Business and Occupation Tax:

While there is no general Washington income tax, there is a business and occupation (B&O) tax. The tax is levied upon almost all businesses located or doing business in the state of Washington including corporations, partnerships, sole proprietorships, and non-profit corporations.

An income tax is based on net business profits AFTER expenses. Washington’s B&O tax is calculated on GROSS income from activities in the state. Businesses with less than $12,000 in gross income for the tax year are not required to file. None of the cases in our individual taxpayer sample were required to file this report because, while several of them included a Schedule C filing for a small home-business, none of them had gross income in excess of $12,000.

Additional Federal Income Tax:

In addition to the tax described above, the "tax burden" for some of the 20 sample cases in our study includes an additional amount for the Washington residents. This amount is the additional federal Income tax that filers who itemize deductions will pay as a result of not having a deduction for state tax payments. This additional federal tax, while obviously still cheaper than paying the entire state tax bill to some other state, represents an additional burden to the middle- and high-income taxpayer in Washington (those most likely to itemize deductions).

These cases illustrate the principle of "exportability" with regard to state income taxes. To "export" a portion of your state tax liability is to have someone else pay a part of your state tax bill. If you itemize deductions on your federal return, you are allowed to deduct payments of, or toward, state taxes. This deduction reduces your federal tax. That savings, directly attributable to your state tax payments, is like having the federal government pay a part of your state tax bill.

Wisconsin:

The starting point for the state income tax is federal adjusted gross income.

Additions: Interest from state and local government obligations from places other than Wisconsin (exempt on the federal return), interest from mutual funds derived from state/local obligations other than Wisconsin (exempt on the federal return), and other minor additions peculiar to Wisconsin.

Subtractions: Interest on US government obligations, interest from mutual funds derived from US government obligations, refunds of state and local taxes, unemployment insurance income, and other minor additions peculiar to Wisconsin.

Tax Credits: Dependent credit of $50 each, credit for up to $200 of real estate tax or rent paid, itemized deduction credit equal to 5% of federal itemized deductions (less state tax and real estate tax deductions), and the married couple credit up to $300, calculated as 2% of the income of the spouse with the lowest income (up to $15,000).

Tax credits: Earned income credit payments in excess of taxes are refunded.

Tax credits are non-refundable, except for the EITC.

Vermont:

The state income tax starts with federal tax liability minus the child care credit.

Tax Credits: Earned income credit (25% of federal amount).

Excess payments over taxes are refunded except excess child care credit over tax is not refunded.

Representative Business Taxpayers:

Our "Representative sample" will include a case from each of the ten (10) categories listed below.

Farming Construction
Manufacturing Transportation
Wholesale Retail - General Merchandise
Retail - Eating and Drinking Services - Hotels and Lodges
Services - Personal/Business Services - Amusement

Methodology:

The term "businesses" usually includes sole proprietorships, partnerships, corporations and Subchapter S Corporations along with the newly created Limited Liability Companies. However, the "tax burden" falls only on corporations. The taxable income for sole proprietorships, partnerships, and Subchapter S Corporations is transferred to individuals and is included on their personal tax returns. Also, Vermont has just entered the limited liability company arena with a law passed in th e last Legislative session. Because we are using 1994 data, these LLC's would not be applicable to Vermont.

As is the case with personal returns, the plan is to analyze actual tax returns filed for businesses and to fashion our sample in such a way to ensure that we cover all of the types, sizes, and income compositions that actually occur in Vermont. Information from the Vermont Tax Department, the Vermont Business Roundtable report and the Vermont Department of Employment and Training helped us to determine the types of businesses that exist in Vermont. Unfortunately, published data from the Vermont Tax De partment on income and expenditure size and type is less specific than the data available on personal income. Therefore, we have relied on information from the Internal Revenue Service that is complete but less Vermont specific.