Delving Into Vermont Taxes
The common wisdom is that Vermont is a high tax state and New Hampshire is a low tax state. I have been reading that gasoline prices actually are lower in Vermont than in neighboring states, largely due to a lower state gasoline tax. And I wondered whether perhaps the gasoline tax is an area in which Vermont actually is a low tax state in relative terms. So I visited the web site of the Tax Foundation, a nonprofit tax research organization offering extensive information about the relative tax burdens of U.S. states on its web site at www.taxfoundation.org/about/. I was surprised to learn that the total tax burden for individuals in Vermont is actually not much higher than the total tax burden for individuals in New Hampshire. The real difference is business taxes.
According to the Tax Foundation, Vermont has the “24th highest” total tax burden among U.S. states (meaning 28 states have lower total tax burdens). New Hampshire ranks as the “35th highest” (meaning 17 states lower higher total tax burdens). These rankings are tied to each state’s “Tax Freedom Day”, which is the date in the calendar year up to which the Tax Foundation calculates that a person works only to pay one’s taxes, and after which a person works to generate personal income. For Vermont, our 2008 Tax Freedom Day was April 19. New Hampshire’s 2008 Tax Freedom Day was April 15. Maine’s 2008 Tax Freedom Day was April 20. So in Vermont, we are working for 4 extra days this year to pay our taxes compared to residents of New Hampshire, and 1 extra day compared to residents of Maine. This compares favorably to our high tax neighbors such as New York, with a Tax Freedom Day of May 5, 2008 (3rd highest state), Massachusetts, with a Tax Freedom Day of April 28, 2008 (6th highest state), and Connecticut, with a Tax Freedom Day of May 8 (the highest state). You can check the tax burdens of each state at www.taxfoundation.org/research/topic/62.html.
As for gasoline tax, the gas tax is $0.20/gallon in Vermont and $0.196/gallon in New Hampshire. The gas tax for each state is listed at www.taxfoundation.org/news/show/245.html.
How can Vermont’s total tax burden be so close to New Hampshire’s, relative to other neighboring states, even though there is no income tax in New Hampshire? According to the Tax Foundation, while Vermont has a relatively high state and local income tax burden (average of 14% of income, compared to 11% average nationally), New Hampshire’s relatively low state and local income tax burden (8% of income, the second lowest in the nation compared to a national average of 11%) are offset by very high real property taxes. New Hampshire’s real property taxes are ranked the 3rd highest in the nation. All of this information can be found at www.taxfoundation.org/research/topic/62.html.
One important ranking in which New Hampshire beats Vermont and all of our neighboring states is the Tax Foundation’s Business Tax Climate Index Ratings. The Business Tax Climate is based on the total of corporate tax, individual tax, sales tax, unemployment tax and real property tax. New Hampshire ranks 7th in the nation in the Business Tax Climate rating, while all of its neighboring states rank low in this category (Vermont is 46th, Massachusetts is 34th, Maine is 38th, Connecticut is 41st, and New York is 50th). The Business Tax Climate Index Ratings are listed at www.taxfoundation.org/taxdata/show/22661.html.
Interestingly, the gasoline tax is not part of the Tax Foundation’s Business Tax Climate Ratings. Vermont’s Business Tax Climate ranking likely would improve relative to other states if gasoline tax was included, as Vermont’s gasoline tax of $0.20/gallon compares favorably to its neighbors, with gasoline taxes of $0.196 in New Hampshire, $0.23 in Massachusetts, $0.29 in Maine, $0.41 in New York and $0.44 in Connecticut (www.taxfoundation.org/news/show/245.html).
Of course, there may be other taxes that are not factored into the Tax Foundation’s research and rankings.
Overall, the Tax Foundation’s research indicates Vermont relies on sales and income taxes, paying 3% more than the national average in these tax categories, while New Hampshire pays 3% less than the national average for sales and income taxes and instead relies on very high real property taxes. The total overall tax burdens in Vermont and New Hampshire, measured by Tax Freedom Day, are only 4 days apart and both states rank in the middle range relative to other states. Vermont’s corporate taxes (not considering gasoline tax) are high relative to other states but businesses dependent upon gasoline benefit from Vermont’s relatively low gasoline tax. Vermont appears to be a high tax state for business, except businesses that benefit from a low gasoline tax, but not a particularly high tax state for individuals in relation to other northeastern states.
This difference between the relative tax burdens for individuals and businesses in Vermont explains at least in part why the business community perceives that its complaints about high taxes in this state do not always find a sympathetic audience, and why the Vermont lifestyle is commonly seen as idyllic for families and retirees even though Vermont is not a low tax state.