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May 4, 2023

CT ranks among worst states for tax burden, study finds

Connecticut ranked as the 47th worst state for individual income taxes, according to the Tax Foundation’s 2023 State of Business Tax Climate Index.

The Nutmeg State came in ahead of Washington, D.C. and New Jersey (tied at No. 48), California (49) and New York (50). Hawaii was ranked No. 46.

Connecticut dropped two spots in the rankings between 2020 and 2021, and has maintained its 47th-place standing since 2021.

The report by the Tax Foundation, a conservative-leaning nonpartisan think tank, takes into account factors such as deductions and business tax structures for sole proprietors in each state.

Alaska, Florida, South Dakota and Wyoming tied for first place in the rankings because they do not have an individual income tax or payroll tax other than the standard unemployment insurance deduction.

Nevada, New Hampshire, Tennessee, Texas and Washington were also among the top performers.

“The individual income tax is important to businesses because states tax sole proprietorships, partnerships, and, in most cases, limited liability companies and S corporations under the individual income tax code,” the Tax Foundation’s Janelle Fritts wrote in a summary of the report. “However, even traditional C corporations are indirectly impacted by the individual income tax, as this tax influences the location decisions of individuals, potentially impacting the state’s labor supply, and higher individual income taxes increase the price of labor.”

States that fared poorly in the Tax Foundation’s rankings tend to have high tax rates and progressive tax structures, Fritts said.

Connecticut’s graduated individual income tax rates range from 3% to 6.99%.

However, state lawmakers are currently debating several potential income tax cuts amid a projected budget surplus.

In addition, Connecticut has a 7.5% corporate income tax rate and a 6.35% sales tax rate. The total state and local tax burden in Connecticut is 12.8%, according to the report.

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