An Overview of State and Local Taxes

woman doing taxes on laptop

The federal government has always recognized the states’ right to impose taxes. States use the revenue earned from tax collection, fees, licenses, and money the federal government grants them to finance their governments and public services. These institutions include schools, law enforcement departments, health and welfare benefits, and other programs that are beneficial to the community members.  

What are the types of state and local taxes? 

There are a variety of state and local taxes, including: 

  • Individual income taxes 
  • Corporate income taxes 
  • Property taxes 
  • Motor vehicle license taxes 
  • Sales taxes 
  • Etc. 

Does everyone have to file a state income tax return? 

Nine U.S. states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) do not impose an income tax. So, residents of those states do not have to file a state tax return. However, they are still subject to federal income taxes. Residents of all other states can direct questions to TaxSlayer to learn more about their state’s tax filing requirements.  

What special circumstances affect state taxes? 

You may need to file multiple state tax returns if you have moved within the last year, work in multiple states, or live and work in different states.  

In 2015, the U.S. Supreme Court ruled against double taxation, stating that two or more states are no longer permitted to tax the same income. If you work in a state that has a reciprocal tax agreement with your home state, you may be able to submit a document to your employer and avoid having taxes withheld from your paycheck. If the two states do not have a reciprocal agreement, you may need to prepare multiple state returns, but you will be refunded for unnecessary withholdings from your paychecks. 

For more details about these special circumstances, read Living in One State, Working in Another.

What is included in the State and Local Tax (SALT) Deduction? 

The SALT deduction allows taxpayers to deduct either their state income tax or state sales tax. In addition, state and local property taxes are deductible as well. As of tax year 2018, the cap on the SALT deduction (property and income (or sales) taxes combined) is $10,000.  

For more information regarding how tax reform has affected the SALT deduction, read What You Need to Know About The State and Local Tax (SALT) Deduction 

For help calculating your state and local sales tax deduction, read How do I calculate my deduction for state and local sales taxes? 

TaxSlayer can help save you a lot of confusion, stress, and most importantly — time. 

The information in this article is current through tax year 2019. 

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