The Constitution gives Congress the power to lay and collect taxes, and the Sixteenth Amendment, ratified in 1913, cleared the way for a federal income tax. States kept their own power to tax, a concurrent power shared with the national government, and they in turn authorize counties, cities, and special districts to levy taxes of their own. The result is a layered system in which a single paycheck, purchase, or home may be taxed by several governments at once.
This guide sorts out which government taxes what, who collects it, and where the layers meet. Each tax and institution links to a full entry.
The levels of government are tightly linked. Federal grants supply about a third of state spending, and federal rules attach conditions to that money. Federal tax law has long let itemizing taxpayers deduct state and local taxes, a deduction the 2017 tax law capped at $10,000 and a 2025 law raised for many households, affecting high-tax states most. Supporters of low-tax states point to growth and competition, while others say higher taxes fund better services, and economists debate who ultimately bears each tax.
Individual income taxes supply about half of federal revenue and payroll taxes about a third. Workers and employers each pay 6.2 percent of wages for Social Security, up to an annual earnings cap, and 1.45 percent for Medicare with no cap. Corporate income taxes, excise taxes on fuel, alcohol, and tobacco, and estate and gift taxes make up most of the rest. Tax law is written by the House Ways and Means and Senate Finance committees and administered by the IRS, with disputes heard in the U.S. Tax Court.
Counties, cities, towns, school districts, and special districts depend heavily on the property tax, assessed on the value of homes, businesses, and land. A single property is often taxed by several overlapping local governments, and schools typically receive the largest share. Many localities also levy sales taxes on top of the state rate, and some cities, such as New York and Philadelphia, tax local incomes. State limits such as California's Proposition 13 cap how fast property taxes can rise.
States raise most of their tax revenue from general sales taxes and personal income taxes, roughly in equal measure, along with corporate taxes, fuel and other excise taxes, and fees. Forty-five states have a statewide sales tax, while Alaska, Delaware, Montana, New Hampshire, and Oregon do not. Nine states do not tax wage income, including Florida, Texas, Nevada, Tennessee, and Washington. The Supreme Court's 2018 decision in South Dakota v. Wayfair let states require online sellers to collect sales tax.
Tariffs, taxes on imported goods, were the federal government's main revenue source until the income tax. Only the federal government may impose them. Congress has delegated broad tariff authority to the President under trade and emergency laws, and the sweeping tariffs imposed since 2025 raised customs revenue sharply and set off court challenges that ended with the Supreme Court striking down the emergency tariffs in February 2026. Customs and Border Protection collects duties at the border, and the Court of International Trade hears disputes.
The power to tax is concurrent: both the federal government and the states may tax the same people and transactions. The Constitution sets a few limits. Federal taxes must be uniform across the country, states may not tax imports and exports without congressional consent, and courts bar states from taxing in ways that discriminate against interstate commerce. Local governments have only the taxing powers their states grant them.
Taxes are only half the story. Follow the federal money from revenue to spending in how the federal budget works, see what each level of government does with its share in states vs. federal: who does what, or learn how tariffs are set in tariffs: who decides.