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Still on the tax-unfriendly list — but improving

October 12, 2018

Connecticut has once again landed on the Kiplinger 10 Least Tax-Friendly States — but just barely, and we passed New Jersey this year.

The 2018 list has Connecticut as the 10th worst, switching places from the 2017 rankings with the Garden State, which is now No. 9.

Topping the list, same as last year, is Minnesota with its state income tax ranging from 5.35 percent to 9.85, Kiplinger reported. New York, with its own high income tax, is also in the worst 5.

Click through the slideshow to see the top 10 most and least tax friendly states.

Connecticut has moved down — that’s a good thing — since 2015 when it came out as the No. 2 Least Tax-Friendly State, followed by a No. 3 showing in 2016, then last year’s No. 9 finish. The reason for the big drop in 2016 was not a tax change but a change in the way Kiplinger measured, illustrating that the outcomes depend heavily on the methods.

But Connecticut deserves its status. The state is tagged not just for an income tax topping out at 6.99 percent, but for taxing adjusted gross income rather than federally taxable income. And of course we have some of the highest local property taxes along with the 6.35 percent sales tax, and no shortage of sin taxes.

On the bright side, the personal finance and business forecasting publisher said, cities and towns in Connecticut can’t tack on their own levies for purchases.

Why did we pass New Jersey? Nothing much changed except the federal tax reform, which limits deductions on state and local taxes to $10,000. That did the trick, Kiplinger’s online editor said in an email, because New Jersey has higher property taxes, on balance — meaning residents there will lose more federal deductions.

Sorting out the likely effects of the Trump tax reform was a big challenge this year, Kiplinger’s David Muhlbaum said in the email.

The top 10 Most Tax-Friendly States are, in order, Alaska, Wyoming, South Dakota and Florida, with only the first two switching spots from 2017.

Connecticut also fares poorly in Kiplinger’s best and worst tax states for retired people.

Data sources include the Tax Foundation, which ranks Connecticut as 4th worst for business tax climate. But as with all these pop-top lists, it’s just a quick snapshot. Actual results may vary.

For example, Massachusetts is in the middle of the pack, best in the Northeast along with Pennsylvania, because of its relatively low, flat 5.1 percent income tax. But you could end up paying more there than in Connecticut if you have moderate income, or if you have short-term capital gains (12 percent, ignored by Kiplinger), or if you live in a high-tax town.

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