State Taxes

A tax you pay directly to the government is known as a direct tax. For example, federal income tax is a common direct tax. Direct taxes must be paid by the person or entity that incurred them, unlike indirect taxes, which can be passed on to others.

Reciprocal tax agreements allow residents of one state to work in other states without having taxes for that state withheld from their pay. They would not have to file nonresident state tax returns there, assuming they follow all the rules.

A property tax assessment is a professional estimation of the market value of residential or commercial real estate. Local governments use your assessment as the basis for calculating your annual property tax bill. Assessments are usually prepared on a specific date each year, and they're often based on recent sales of comparable properties in the area.

A mill rate, often referred to as a millage rate, is used to calculate property taxes by multiplying it by the value of a property. A mill is one one-thousandth of a dollar, and in property taxes, 1 mill equals $1 per each $1,000, and 1 mill also equals 0.1%. All states and Washington, D.C. impose property taxes but not always at the state level. Many do so at the municipal or county level.

An excise tax is considered to be a “narrowly based” or “indirect” tax because it’s levied on certain products or services, not on a specific person.  Excise taxes aren’t exclusively imposed by the U.S. federal government. All states and some municipalities levy some form of excise tax.

The Internal Revenue Code (IRC) conformity refers to the degree to which state tax codes conform to the federal tax code. Most states conform in some respects but some choose not to adopt all federal provisions. The degree to which different states conform to the IRC can produce significant differences in tax liability from state to state when compared to the federal level.

A taxable event is any event, transaction, or action that impacts your taxes. Examples of taxable events include earning wages from a job, earning interest from a bank account, selling an asset such as stocks, bonds, or real estate, and earning income from a business.

A flat tax is a system that levies the same fixed percentage rate on every citizen regardless of their income. Most flat tax systems exempt those living below the poverty line. Some U.S. states use a flat tax system, as do several nations, including Russia, Latvia, and Lithuania. The U.S. federal government uses a progressive income tax system, in which the percentage of taxes owed increases with the income of the taxpayer.

The federal gasoline excise tax was first introduced in 1933 at just one cent per gallon. The tax pays for transportation-related infrastructure projects, as well as mass transportation costs across the U.S. Each state additionally tacks its own tax onto every gallon of gas that’s sold there. According to the American Petroleum Institute, the states with the highest gas taxes as of January 2022 were California and Pennsylvania.