Definition

• A state income tax is any tax that a state applies to the income of corporations, residents and sometimes nonresidents working in the state. What exactly constitutes income changes with the state; some states follow the Internal Revenue Service's guidelines -- any form of compensation for goods and services, such as wages, tips, commissions and self-employment income, along with stock dividends, some grants and scholarships and rents. Other states establish their own rules and definitions of income.
  
  

Rates

• The income tax rate also differs considerably across states. All state income taxes are a percentage of taxable income that residents pay to the state in addition to the taxes that they pay to the federal government through the IRS. Most states have graduated rates, with those making low income paying a smaller percentage and those with high incomes paying a higher percentage.
  
  

Deductions

• Residents of many states can deduct state income taxes on their federal tax return. All states allow business deductions for self-employed individuals and all states have a personal exemption that residents can opt to take, though the amount varies considerably depending on the state rates, from Arkansas' $43 for a single person to Connecticut's $13,000.
  
  

Other States

• Seven states -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- do not have individual income taxes and generate revenue through taxes on other sources. Most have a sale tax and tax corporate earnings, while Nevada generates considerable revenue by taxing the gambling industry.