New York remains most “tax-burdened” state in the nation, according to The Tax Foundation, which released its Annual State-Local Tax Burden Rankings for 2010. Residents of New York, New Jersey and Connecticut paid over 12 percent of their annual income in state and local taxes in 2010, according to the report. This is a full percentage point higher than the next highest tax-burdened state, California.

On the flip side, residents of Alaska paid the least in state and local taxes – only 7 percent – in 2010.

The Tax Foundation study aims to measure tax burden, which refers to the amount of taxes paid by each state’s residents, and whether those taxes are paid to their own state, or to others. The report cites several examples, including the following: “When people all over the country vacation in Disney World or Las Vegas, tax collectors will tally the receipts from lodging, rental car, restaurant, and general sales taxes in Florida and Nevada, but we will count those payments in the states where the vacationers live.”

Tax burden is calculated by combining the amount of state and local taxes paid by state residents (to both their own and other governments) and then dividing those totals by each state’s total income.

For 2010, the states with the highest and lowest tax burdens were:

States with the Highest Tax Burdens (2010)

1.       New York (12.8%)

2.       New Jersey (12.4%)

3.       Connecticut (12.3%)

4.       California (11.2%)

5.       Wisconsin (11.1%)

States with the Lowest Tax Burdens

1.       Alaska (7.0%)

2.       South Dakota (7.6%)

3.       Tennessee (7.7%)

4.       Louisiana (7.8%)

5.       Wyoming (7.8%)

Source: The Tax Foundation, Annual State-Local Tax Burden Ranking – 2010

The Rise – and Fall – of Tax Burdens Over Time

Because of its oil-dependent economic structure, Alaska is an atypical state, with a volatile tax burden pattern. “Before the Trans-Alaska Pipeline system was finished in 1977, taxpayers in Alaska paid 11 percent of their income in state and local taxes,” according to the report. “By 1980, with oil tax revenue pouring in, Alaska repealed its personal income tax and started sending out checks to residents instead. The tax burden plummeted, and now Alaskans are the least taxed, with a burden of only 7.0 percent.”

Residents of North Dakota, the District of Columbia, and Arizona have also seen a marked decrease in their tax burdens since 1977.

“Although most states have seen a decrease in tax burdens over time, some have experienced increases,” according to The Tax Foundation. “Since 1977, Arkansas taxpayers have gone from some of the least taxed at 8.3 percent to some of the more heavily taxed with a burden of 10.0 percent.” Other states with significantly increased tax burdens over the past 35 years include Connecticut, Indiana, and Ohio.

The Tax Foundation, a non-partisan think tank, conducts an annual analysis of the combined state and local tax burden carried by the residents of each of the 50 states.