State Income Tax

Income taxes are a levy imposed by the state or a national authority of the rank of a federal government on individuals or legal entities residing within their geographical boundaries. It is a form of a direct tax. While personal income taxes are levied on the income of an individual, corporate income taxes are levied on the profits of companies or corporate organizations. Income taxes are one of the most sought after methods for the authorities to garner revenue which is used for various developmental causes taken up by the state.

Income taxes are a levy imposed by the state or a national authority of the rank of a federal government on individuals or legal entities residing within their geographical boundaries. It is a form of a direct tax. While personal income taxes are levied on the income of an individual, corporate income taxes are levied on the profits of companies or corporate organizations. Income taxes are one of the most sought after methods for the authorities to garner revenue which is used for various developmental causes taken up by the state.

State income taxes can mean both income taxes imposed by a national authority (such as the Central Board of Direct Taxes, Department of Revenue under the Government of India) or by the different State Governments in case of the USA. Income taxes can be of a progressive, regressive or constant or flat rate across the country. While the USA has a progressive state income tax system in place which implies that the tax rate increases with income, India has a uniform tax rate across the nation as it is fixed by a central authority and is the same for all the states of India. The principle taxes which are imposed by the state governments in case of India are the Sales Tax and Octroi Duty imposed for movements of goods between different states or municipalities.

In accordance with the provisions in Indian Income Tax Act, 1961, the slabs for personal income tax range from 0- Rs.1 lakh, Rs.1 lakh to Rs. 1.5 lakh, Rs. 1.5 lakh to Rs. 2.5 lakh and from Rs.2.5 lakh and above. The corresponding income tax rates are 0%, 10%, 20% and 30% respectively. However, for annual incomes exceeding Rs.8.5 lakhs, a surcharge of 10% on total tax also has to be paid. Corporate taxes are 40% of the total income.

As already mentioned earlier, state income tax rates differ across the different states of the USA as they are administered by the respective state governments. As of Jan 1st, 2007, income tax rates were the highest for Vermont with the highest tax rates at 9.5% with incomes being divided into 5 brackets. Illinois and Indiana have the lowest flat tax rates at 3% and 3.5% respectively. The personal exemption granted ranges from $2000 to $4000 to $2000 for a single to a married individual to one having a child respectively. State income tax rates can be said to be the most reasonable for Alabama with tax rates ranging from 2% to 5% with only three income brackets which provides for simplicity of computation for the government officials.

California has one of the most skewed tax rates in the country with income tax rates ranging from 1% to 9.3% with 6 income brackets. Mississippi provides for the greatest tax exemptions for married individuals with $12000 whereas Wisconsin offers only a tax exemption of $1400. New Jersey can be said to have a very progressive tax structure ranging from 1.4% to 6.97% with 6 income brackets. Seven states choose to have no state income taxes; they are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

In case of the UK, income taxes are administered by Her Majesty Department of Revenue and Customs (HMRC) and various tax allowances are offered depending on the income and age of the individual. They do not differ across different states and counties. Income tax allowance was offered for 5,035 pounds annually for the year 2006-07 for individuals up to 65 years of age. Tax allowances for persons over 65 was minimum at 7,280 pounds annually which would increase further for individuals over 75 years of age. Income tax rates in the UK are of a progressive nature ranging from 10% to 40% in case of earned income and it the same for savings. Income tax rates on dividends range from 10% to 32.5%.

Income tax or state income tax is the most convenient method of taxation, and although several anomalies exist which allows heavy tax evasion in many countries, it still is the most popular way to raise revenue on part of the government.