The first state income tax, as the term is understood today in the United States, was passed by the State of Wisconsin in 1911 and came into effect in 1912. However, the idea of taxing income has a long history. Some of the English colonies in North America taxed property (mostly farmland at that time) according to its assessed produce, rather than, as now, according to assessed resale value. Some of these colonies also taxed "faculties" of making income in ways other than farming, assessed by the same people who assessed property. These taxes taken together can be considered a sort of income tax. The records of no colony covered by Rabushka (the colonies that became part of the United States) separated the property and faculty components, and most records indicate amounts levied rather than collected, so much is unknown about the effectiveness of these taxes, up to and including whether the faculty part was actually collected at all. •
Plymouth Colony from 1643 and
Massachusetts Bay Colony from 1646, and after they merged, the
Province of Massachusetts Bay until the Revolution; •
New Haven Colony from 1649 and
Connecticut Colony from 1650, past the 1662 merger with New Haven, until the Revolution; • the
Colony of Rhode Island and Providence Plantations, arguably from 1673 to 1744 or later; • the
Province of West Jersey, a single 1684 law; • the "South-west part" of the
Province of Carolina, later the
Province of South Carolina, from 1701 until the Revolution; • the
Province of New Hampshire, arguably from 1719 to 1772 or later; • and the
Delaware Colony in the
Province of Pennsylvania, from 1752 to the Revolution. Rabushka makes it clear that Massachusetts and Connecticut actually levied these taxes regularly, while for the other colonies such levies happened much less often; South Carolina levied no direct taxes from 1704 through 1713, for example. Becker, however, sees faculty taxes as routine parts of several colonies' finances, including Pennsylvania. During and after the
American Revolution, although property taxes were evolving toward the modern resale-value model, several states continued to collect faculty taxes. • Massachusetts until 1916 (when it was replaced by a quasi-modern classified individual income tax); • Connecticut until 1819; • South Carolina, where the tax edged closer to a modern income tax, until 1868; • Delaware until 1796; • Maryland from 1777 to 1780; • Virginia from 1777 to 1782; • New York, one 1778 levy; • the
Vermont Republic, then Vermont as a state, from 1778 to 1850; • and Pennsylvania from 1782 to 1840 (when it was replaced by an individual income tax; Becker, as noted above, would date this tax earlier). Between the enactment of the Constitution and 1840, no new general taxes on income appeared. In 1796, Delaware abolished its faculty tax, and in 1819 Connecticut followed suit. On the other hand, in 1835, Pennsylvania instituted a tax on bank dividends, paid by withholding, which by about 1900 produced half its total revenue. Several states, mostly in the South, instituted taxes related to income in the 1840s; some of these claimed to tax total income, while others explicitly taxed only specific categories, these latter sometimes called classified income taxes. These taxes may have been spurred by the ideals of
Jacksonian democracy, or by fiscal difficulties resulting from the
Panic of 1837. None of these taxes produced much revenue, partly because they were collected by local elected officials. • Pennsylvania from 1840 to 1871; • Maryland from 1841 to 1850; • Alabama from 1843 to 1884; • Virginia from 1843 to 1926 (when it was replaced by a modern individual income tax); • Florida from 1845 to 1855; • and North Carolina from 1849 to 1921 (when it was replaced by a modern individual income tax). The 1850s brought another few income tax abolitions: Maryland and Vermont in 1850, and Florida in 1855. During the
American Civil War and
Reconstruction Era, when both the United States of America (1861-1871) and the Confederate States of America (1863-1865) instituted income taxes, so did several states. • Texas from 1863 to 1871; • Missouri from 1861 to 1865; • Georgia from 1863 to 1866; • West Virginia in 1863 only; • Louisiana from 1865 to 1899; • and Kentucky from 1867 to 1872. As with the national taxes, these were made in various ways to produce substantial revenue, for the first time in the history of American income taxation. On the other hand, as soon as the war ended, a wave of abolitions began: Missouri in 1865, Georgia in 1866, South Carolina in 1868, Pennsylvania and Texas in 1871, and Kentucky in 1872. The rest of the century balanced new taxes with abolitions: Delaware levied a tax on several classes of income in 1869, then abolished it in 1871; Tennessee instituted a tax on dividends and bond interest in 1883, but Kinsman reports that by 1903 it had produced zero actual revenue; Alabama abolished its income tax in 1884; South Carolina instituted a new one in 1897 (eventually abolished in 1918); and Louisiana abolished its income tax in 1899. Following the 1895 Supreme Court decision in
Pollock v. Farmers' Loan & Trust Co. which effectively ended a federal income tax, some more states instituted their own along the lines established in the 19th century: • Oklahoma 1908 to 1915; • Mississippi 1912 to 1924; • Missouri, individual and corporate, from 1917. However, other states, some perhaps spurred by
Populism, some certainly by
Progressivism, instituted taxes incorporating various measures long used in Europe, but considerably less common in America, such as withholding, corporate income taxation (as against earlier taxes on corporate capital), and especially the defining feature of a "modern" income tax, central administration by bureaucrats rather than local elected officials. The twin revenue-raising successes of Wisconsin's 1911 (the Wisconsin Income Tax, the first "modern" State Income Tax was passed in 1911 and came into effect in 1912) and the United States' 1914 income taxes prompted imitation. Note that writers on the subject sometimes distinguish between corporate "net income" taxes, which are straightforward corporate income taxes, and corporate "franchise" taxes, which are taxes levied on corporations for doing business in a state, sometimes based on net income. Many states' constitutions were interpreted as barring direct income taxation, and franchise taxes were seen as legal ways to evade these bars. The term "franchise tax" has nothing to do with the voting franchise, and franchise taxes only apply to individuals insofar as they do business. Note that some states actually levy both corporate net income taxes
and corporate franchise taxes based on net income. For the following list, see and. • The
Territory of Hawaii, then Hawaii as a state, individual and corporate from 1901 (this is sometimes claimed as the oldest state income tax; it is certainly the oldest state corporate income tax); • Wisconsin, individual and corporate from 1911 (generally considered the first modern state income tax, built on a law largely written by Delos Kinsman, whose 1903 book on the subject is cited above; its major distinction as against older laws, including Hawaii's, is that state bureaucrats rather than local assessors collected it); • Connecticut, franchise, from 1915; • Oklahoma, modernisation of existing individual tax, from 1915; • Massachusetts, individual, from 1916; • Virginia, corporate, from 1916; • Delaware, individual, from 1917; • Montana, franchise, from 1917; • New York, franchise, from 1917; • Note abolition of South Carolina's non-modern individual income tax in 1918; • Alabama, individual, 1919, declared unconstitutional 1920; • New Mexico, individual and corporate, 1919, apparently abolished soon thereafter; • New York, individual, from 1919; • North Dakota, individual and corporate, from 1919; • Massachusetts, corporate (franchise), from 1919 or 1920; • Mississippi's income tax was held to apply to corporations in 1921; • North Carolina, modernisation of existing individual and institution of corporate taxes, from 1921; • South Carolina, individual and corporate, from 1921 or 1922; • New Hampshire, "intangibles" (restricted to interest and dividends), from 1923; • Oregon, individual and corporate, 1923 (repealed 1924); • Tennessee, corporate, from 1923; • Mississippi, modernisation of existing corporate and individual taxes, from 1924; • Virginia, modernisation of existing corporate and individual taxes, from 1926. This period coincided with the United States' acquisition of colonies, or dependencies: the Philippines, Puerto Rico, and Guam from Spain in the Spanish–American War, 1898–99; American Samoa by agreements with local leaders, 1899-1904; the Panama Canal Zone by agreement from Panama in 1904; and the U.S. Virgin Islands purchased from Denmark in 1917. (Arguably, Alaska, purchased from Russia in 1867, and Hawaii, annexed in 1900, were also dependencies, but both were by 1903 "incorporated" in the U.S., which these others never have been.) The Panama Canal Zone was essentially a company town, but the others all began levying income taxes under American rule. (Puerto Rico already had an income tax much like a faculty tax, which remained in effect for a short time after 1898.) • The Philippines and Puerto Rico, from 1913, by the same law that instituted the federal income tax; this law is ancestral to the modern independent Philippines' income tax as well; and • The U.S. Virgin Islands, from 1922. A third of the current state individual income taxes, and still more of the current state corporate income taxes, were instituted during the decade after the
Great Depression started: • Arkansas, individual and corporate, from 1929; • California, franchise, from 1929; • Georgia, individual and corporate, from 1929; • Oregon, individual, franchise, and intangibles, from 1929, but the individual tax didn't take effect until 1930 and was restricted to use for property tax relief, and the intangibles tax was held unconstitutional in 1930; • Tennessee, intangibles, from 1929; • Idaho, individual and corporate, from 1931; • Ohio, intangibles, from 1931, apparently abolished soon thereafter; • Oklahoma, corporate, from 1931; • Oregon, intangibles, 1931 to 1939; • Utah, individual and franchise, from 1931; • Vermont, individual and corporate, from 1931; • Illinois, individual and corporate, 1932, soon declared unconstitutional; • Washington, individual and corporate, 1932, declared unconstitutional 1933; • Alabama, individual and corporate, from 1933; • Arizona, individual and corporate, from 1933; • Kansas, individual and corporate, from 1933; • Minnesota, individual, corporate, and franchise, from 1933; • Montana, individual and corporate, from 1933; • New Mexico, individual and corporate, from 1933; • Iowa, individual and franchise, from 1934; • Louisiana, individual and corporate, from 1934; • California, individual and corporate, from 1935; • Pennsylvania, franchise, from 1935; • South Dakota, individual and corporate, 1935 to 1943; • The U.S. Virgin Islands income tax in 1935 became the first "mirror" tax, for which see below; • Washington, individual and corporate, 1935, held unconstitutional in separate decisions the same year; In any event, the other mirror tax dependencies (the U.S. Virgin Islands and American Samoa) are free to continue mirroring if, and as much as, they wish. The U.S. acquired one more dependency from Japan in World War II: the Trust Territory of the Pacific Islands. Two states, South Dakota and West Virginia, abolished Depression-era income taxes in 1942 and 1943, but these were nearly the last abolitions. For about twenty years after World War II, new state income taxes appeared at a somewhat slower pace, and most were corporate net income or corporate franchise taxes: • Pennsylvania, corporate, from 1951; • Oregon removed the restriction of individual income tax funds to property tax relief in 1953; • Delaware, corporate, from 1958; • New Jersey, corporate, from 1958; • Idaho, franchise, from 1959; • Utah, corporate, from 1959; • West Virginia, individual, from 1961; • American Samoa, mirror, from 1963; • Indiana, individual and corporate, from 1963; • Wisconsin, franchise, from 1965. As early as 1957
General Motors protested a proposed corporate income tax in
Michigan with threats of moving manufacturing out of the state. However, Michigan led off the most recent group of new income taxes: from 1967; • Nebraska, individual and corporate, from 1967; • Maryland, individual (added county withholding tax and non resident tax. Believes led to state being mainly a commuter state for work) 1967, Present • West Virginia, corporate, from 1967; • Connecticut, intangibles (but taxing capital gains and not interest), from 1969; • Illinois, individual and corporate, from 1969; • Maine, individual and corporate, from 1969; • New Hampshire, corporate, from 1970; • Florida, franchise, from 1971; • Ohio, individual and corporate, from 1971; • Pennsylvania, individual, from 1971; • Rhode Island, individual, from 1971; • The Trust Territory of the Pacific Islands, individual and corporate, from 1971. In the early 1970s, Pennsylvania and Ohio competed for businesses with Ohio wooing industries with a reduced corporate income tax but Pennsylvania warning that Ohio had higher municipal taxes that included taxes on inventories, machinery and equipment. A few more events of the 1970s follows: • New Jersey instituted an individual income tax in 1976; • The Northern Mariana Islands negotiated with the U.S. in 1975 a mirror tax which was to go into effect in 1979, but in 1979 enacted a law rebating that tax partially or entirely each year and levying a simpler income tax; • Alaska abolished its individual income tax retroactive to 1979 in 1980. (Also during this time the U.S. began returning the Panama Canal Zone to Panama in 1979, and self-government, eventually to lead to independence, began between 1979 and 1981 in all parts of the Trust Territory of the Pacific Islands except for the Northern Mariana Islands. The resulting countries - the Marshall Islands, the Federated States of Micronesia, and Palau - all levy income taxes today.) The only subsequent individual income tax instituted to date is Connecticut's, from 1991, replacing the earlier intangibles tax. The median family income in many of the state's suburbs was nearly twice that of families living in urban areas. Governor Lowell Weicker's administration imposed a personal income tax to address the inequities of the sales tax system, and implemented a program to modify state funding formulas so that urban communities received a larger share. Numerous states with income taxes have considered measures to abolish those taxes since the
Late-2000s recession began, and several states without income taxes have considered measures to institute them, but only one such proposal has been enacted: Michigan replaced its more recent value-added tax with a new corporate income tax in 2009. ==State individual income tax rates and brackets==