Is Your State Tax System Friendly to Businesses?

Have you ever wondered if your state’s tax system is business friendly? And how does your state’s tax regime compares with other states? Do you think you’ll be better off if you move your business operations to another state?

An annual study by a Washington D.C. think tank Tax Foundation examines the role of attractive state business tax climates in the decision of where to locate a business. They’ve created the 2017 State Business Tax Climate Index that measures the tax friendliness to a business of each state’s tax system. It is a comparative measure that can provide insights on how the state tax system is “hampering the efforts of local entrepreneurs or the possible entry of new businesses.”

The Index rewards states that have a neutral tax code, where the tax system creates a level playing field for all types of businesses — be it small or large; a startup or an existing business; capital intensive or service intensive. Aside from neutrality, the Index ranks high the states that also possess the following tax system characteristics:

• Low and flat rates
• Have tax systems that are simple and transparent
• Avoid double taxation
• Have statutory or constitutional restraints that keep tax burdens low over time

In addition, the study states “the best states raise sufficient revenue without imposing at least one of the three major state taxes—sales taxes, personal income taxes, and corporate income taxes.” According to the Index, the top 10 states with the best state business tax climate are as follows:

1. Wyoming
2. South Dakota
3. Alaska
4. Florida
5. Nevada
6. Montana
7. New Hampshire
8. Indiana
9. Utah
10. Oregon

At the other end of the spectrum, the worst state tax codes tend to have:

• Complex, multi-rate corporate and individual income taxes with above-average tax rates;
• Above-average sales tax rates that don’t exempt business-to-business purchases;
• Complex, high-rate unemployment tax systems; and
• High overall state tax collections with few tax or expenditure control.

The 10 states with the least hospitable business climates according to the Index are:

• Louisiana
• Maryland
• Connecticut
• Rhode Island
• Ohio
• Minnesota
• Vermont
• California
• New York
• New Jersey

The overall Index looks at the major features of a state’s tax system: the individual income tax, corporate income tax, sales tax, unemployment insurance tax, and property tax. Overall, the Index covers 114 variables and looks at the state’s business tax climate at the beginning of the state fiscal year, or July 1.

Read the complete 2017 State Business Tax Climate Index