State Income Tax Help

State income tax is an income tax in the United States that is levied by each individual state. Some states choose to impose no income tax.
These states are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Additionally, New Hampshire and Tennessee limit their state income taxes to dividends and interest income only. As of 2005, the highest rate of state income tax is that of Montana, with a maximum rate of 11%. Of those states which enforce income tax, the lowest maximum rate is that of Illinois, which levies a flat tax of 3%. Most states have a progressive income tax, where the rate rises as an income gets larger. In California, for instance, the rate begins at 1% at $6,000 in income and rises to 9.3% over $39,000 in income.
Income tax levied by individual states is on top of the federal income tax list. In addition, some states allow individual cities to impose an additional income tax. However, some state and local taxes are deductible for federal tax purposes. Through this deduction, the federal government effectively subsidizes a portion of an individual's state income tax. Not all states levy an income tax and U.S. territories such as Puerto Rico and Guam pay no federal income tax.
State income taxes are on top of the federal income tax, which currently tops out at 35%. Therefore, the maximum total rate is 35% of income in the states of Florida, Texas, and Washington, but 46% of income in Montana and 44.3% in California. However, these figures do not reflect the fact that some state and local taxes (including state income taxes) are deductible for federal tax purposes. Through this deduction, the federal government effectively subsidizes a portion of an individual's state income tax.
In addition, some states allow cities to impose income taxes above and beyond the federal and state income taxes. An example is New York, New York, where there is both a state income tax of up to 7.7% and a city income tax, up to 5.82%. The maximum rate in the city limits of New York City (as of 2005) is therefore 48.52% (approximately one-half of marginal income), or 1.39 times the 35.0% rate (approximately one-third of marginal income) inside "federal income tax only" cities such as Seattle, Houston, Dallas, and Miami.

• Alaska – no tax on individuals but there is a state corporate income tax
• Florida – no tax on individuals but there is a state corporate income tax. Once had tax on "intangible personal property" held on the first day of the year (stocks, bonds, mutual funds, money market funds, etc.) but will be abolished starting in 2007. The Florida Constitution explicitly prohibits a personal income tax.
• New Hampshire – does have tax on interest and dividends, wages earned in other states, and wages earned by non-residents
• South Dakota
• Tennessee – does have tax on interest and dividends
• Texas – recently passed a gross receipts tax on businesses. The Texas Constitution places severe restrictions on passage of a personal income tax and use of its proceeds.
• Washington – has a corporate tax called the "Business and Occupation Tax (B&O)" [1]
• Wyoming

Types of income
For tax purposes, income can be divided in a variety of ways.
The first division is between ordinary income and capital gains.
Ordinary income: Ordinary income includes sources such as salary and wages.
Capital gain: capital gain generally comes from the sale of investment property.
Congress has typically shown a preference for long-term investment by having a capital gains tax rate lower than the ordinary income rate. However, only long-term capital gains get preferential treatment; short-term capital gains (from property held for one year or less) are taxed at the same rate as ordinary income. Added complications come from various distinctions within each category. For instance, qualified dividends, which were previously taxed at ordinary income rates (as non qualified dividends currently are), are currently taxed at long-term capital gain rates until 2011 under the Jobs and Growth Tax Relief Reconciliation Act of 2003, and within long-term capital gains, gains on certain real estate, collectibles, and small business stock each have their own tax rates. The rules for offsetting capital losses with gains (whether capital or ordinary) add further complications. In ordinary usage, when someone speaks of their "tax rate", they typically are referring to their marginal tax rate for ordinary income.
Another important distinction in types of income is income from passive activities versus non-passive activities, an attempt to curb tax shelters used by taxpayers not directly involved with an activity other than as an investor