Question

How does a state like Washington (or any state that doen not impose income tax or sales tax) make up for the revenue not collected by income tax?

Answer 1

For a state, the major source of revenues are Income taxes (both individual and Corporate) and Sales taxes.

However, some of the states do not impose income tax on individuals and Sales taxes. They make up for the loss of revenue by collecting revenue through some other form., as discussed below;

1. Collecting income tax on dividend and interest income instead of earned income (eg., Tennessee, New hampshire)
2. Collecting higher sales tax to compensate for the loss of revenue due to non collecting of individual income tax (eg., Tennessee)
3. Some states impose only corporate tax and do not levy either individual income tax or sales tax (eg., Alaska)
4. Some states generate revenue by levying corporate taxes and sales taxes but no tax on individual income (eg., Florida)
5. By levying gaming taxes. (Eg., Neveda state’s major source of income (casino operators contributed approximately 42% of its State’s general fund in 2016 ) is through taxes and levies collected from Casino operators.)

Thus, the states impose one or ther other form of tax to compensate for the loss of revenue due to no tax on individual income taxes or sales taxes. It may be noted that for a state, there are various forms of revenues in addition to the traditional income tax and sales taxes. They are listed below;

1. General admissions tax
2. Excise duty
3. Special intangible tax
4. Franchise tax on income
5. Inventory tax
6. Property taxes
7. Education charges
8. Hospital charges etc.,

Out of the above available choices, the states choose taxes to compensate for the loss of revenue in one or the other form of tax.

In the case of Washington, there is no indidual and corporate income tax. However, the major sources of its revenue are as follows;

                Sales & Gross receipts tax (appx 40% of total revenue)

                Property taxes (appx 20% of total revenue)

                Education & Hospital charges (appx 13% of total revenue)