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Vermont Tax StudyVolume II

Analyzing and ComparingTax Levels Using the Representative

Individual/Firm Approach

Purpose of Study• Review collective impact of 10 years worth of tax law

changes

• Compare Vermont’s tax structure and liability levels toother competitive states

• Dispel and/or confirm beliefs about Vermont tax levels(2006 Tax Foundation Ranked VT #1 with the highesttax burden per capita in the country)

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10-Year Update of the 1996 Study• Volume I is a comparative analysis using census and

other data

• Volume II uses case studies to compare individual andcorporate tax levels

• Vermont is compared to 11 other states: New England(ME, NH, NY, MA, CT) plus Florida, Minnesota, NorthCarolina, Washington, Oregon and Wisconsin

• 2005 tax year data used throughout the study

Individual Case Studies

Estimate of total tax liability includes

• Income Taxes 312 personal income tax returnscompleted (24 federal and 288 state returns)

• Sales Taxes (including meals and gasoline whereapplicable).

• Gasoline Excise Tax

• Motor vehicle license and registration fees

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Individual Cases List

4MFJ24,981#3

1Single24,500#2

3MFJ24,135#7

1Single23,862#24

1Single19,429#17

2MFJ17,504#21

2MFJ13,200#19

2HOH13,200#13

2MFJ13,200#12

1Single9,800#16

1Single9,800#1

0Single1,868#4

ExemptStatusAGICase #

4MFJ1,066,309#23

2HOH715,868#6

5MFJ357,934#22

4MFJ109,320#5

1Single88,011#14

4MFJ80,743#9

1Single63,894#10

4MFJ50,372#8

4HOH50,000#15

1Single45,624#18

1MFS45,000#11

2MFJ26,810#20

ExemptStatusAGICase #

Tax Liability Range and Vermont Rank for Individual Case Studies

(1,000)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

#13 #12 #1 #16 #4 #19 #21 #7 #3 #24 #20 #17 #2 #18 #15 #8 #11 #10 #9 #14 #5

Case Number

Tax L

iabili

ty

Vermont

The range of total tax liability in each of the comparison states is depicted with a vertical line,and Vermont’s relative ranking is shown by the green square.

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Summary FindingsIndividual Cases

• Vermont has a highly progressive overall state taxstructure with relatively low taxes on lower-incometaxpayers; relatively higher taxes on upper-incometaxpayers.

• Driving the results is the individual income tax, whichcomprises the majority of the overall tax liabilitycalculated for most taxpayers.

• Many of the comparison states have progressive statetax structures, Vermont’s tends to be the mostprogressive.

• Difficult to draw unambiguous conclusions whencomparing state and local taxation, illustrated by outliersthat contradict the overall conclusions.

Tax Liability Rank, Select Four States

0

2

4

6

8

10

12

228

266

276

290

311

313

672

759

782

1,0

42

1,0

91

1,1

00

1,4

14

1,9

33

2,1

41

2,4

29

2,7

08

4,0

18

4,3

63

5,1

15

6,5

71

21,6

75

41,1

38

66,4

66

M edian T ax L iab ility for E ac h Cas e

Tota

l T

ax R

ank

VT W A

F L M E

Ascending line indicates progressivity; descending line indicates regressivity

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Tax Liability Ranks, New England States

0

2

4

6

8

10

12

Median Tax Liability for Each Case

VT

CT

MA

ME

NH

NY

Single Filing Status, Total Tax Liability Ranked by AGI

0

1,000

2,000

3,000

4,000

5,000

6,000

1,868 9,800 9,800 19,429 23,862 24,500 45,624 63,894 88,011

#4 #1 #16 #17 #24 #2 #18 #10 #14

Adjusted Gross Income

Tax L

iabili

ty

VT WA

FL NH

Series2

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Married Filing Jointly*, Four or More Exemptions –Total Tax Liability Ranked by AGI

0

5,000

10,000

15,000

20,000

25,000

24,981 50,000 50,372 80,743 109,320 357,934 1,066,309

#3 #15 #8 #9 #5 #22 #23

Adjusted Gross Income

Tax L

iabili

ty

VT WA

FL NH

* Case #22 is a head of household

Representative Case #8

$1,426

$2,205

$2,757

$4,424

$3,968

$3,711 $3,642

$3,311 $3,265 $3,205

$2,860

$2,806

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

OR NC WI MN ME MA NY CT WA VT FL NH

Sales & Use

State Income Tax

Other

Federal Income Tax

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Case #8 Estimated State Income Taxes

$3,007

$1,826

$1,617$1,554 $1,543

$989

$0 $0 $0

$848

$919

$1,352

0

500

1,000

1,500

2,000

2,500

3,000

3,500

OR NC MA WI MN ME NY CT VT WA FL NH

Summary Findings Continued• Income Tax Liability – Income tax levels for Vermont

taxpayers ranked in the middle or lower half among thecomparison states for nearly all of the case studies.

• Sales and Use Tax Liability – Vermont ranked ninthamong the 12 comparison states in sales and use taxliability, up from 10th a decade ago.

• Selected Other Taxes –Vermont has the highest taxeson served meals and among the highest motor vehiclelicense and registration fees. Vermont has the secondlowest gasoline excise tax rate of the comparison states.

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Corporate Case Studies

Brief Description

Claims a federal qualifiedproduction activities deduction(QPAI)

Has a net operating loss (NOL)Claims federal bonus depreciation

Taxable income = $1.1 million9.75% marginal rate bracket inVermont

Taxable income = $22,3158.1% marginal rate bracket inVermont

Multi-state corporation; 25% ofbusiness in each of 4 statesSingle state corporation

Corporate Case Study BCorporate Case Study A

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Corporate Case Study A$3,993

$3,187

$2,657$2,577

$2,231 $2,220$2,169

$1,138

$952 $944

$637

$1,903

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

WA MA MN NH NY VT WI NC ME FL OR CT

State

Ta

x L

iab

ilit

y

Federal Tax = $3,347State Tax Range = $3,356

Corporate Case Study B

$29,788

$25,875 $25,505

$23,064

$21,258 $20,901$20,241

$18,064

$14,534

$33,285

$33,785

$21,258

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

NH MA MN VT ME WI CT NY NC WA FL OR

State

Ta

x L

iab

ilit

y

Federal Tax = $385,475State Tax Range = $19,251

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Summary FindingsCorporate Cases

• The rankings among the states for both caseshad some unpredictable results.

• Corporate income tax liability seems lessconsistent between businesses within a state,and may be more dependent on specific taxpolicies.

• Vermont corporate income tax was significantlyrestructured beginning in tax year 2006.

Criticism and Support

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“The two most serious problems with the report are that itignores the property tax and that it only looks at 12 states.These limitations are understandable, but they stillsignificantly weaken the study.”Art Woolf, Rutland Herald

“Today’s news report about the Legislature’s new report onVermont’s tax burden – and their effort to exclude theproperty tax from the calculation – is another indication ofhow out of touch the majority controlling the Legislature iswith the day-to-day challenges of our working families andsmall businesses. The underlying argument of this report –that our taxpayers could afford to pay a little more – isdisturbing and fundamentally disrespectful to workingVermonters all across our state who are struggling to makeends meet.”Official Statement of the Governor on House Democrat’sStudy of State Tax Burden

Negative

Positive “The JFO study is helpful, but is really a detailed look at

a handful of “trees in the forest” and not a study of thelarger tax system. Case studies always add helpfulinsights on the impact of tax policy on the ground andcomparing them to other states is helpful.”

Tom Pelham, Vermont Tax Commissioner (RutlandHerald article)

“It contains important information that helps debunk themantra about VT having the highest “tax burden” in thecountry. Unlike the flawed per capita approach, the JFOstudy gets to the heart of the matter.”Doug Hoffer, High Road Vermont

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Seven Days Weekly Newspaper, October 17 – 24, 2007 Page 08A