The Tax Foundation released its annual State Business Tax Climate Index. There weren’t many surprises with the best states:
1. Wyoming
2. South Dakota
3. Alaska
4. Florida
5. Montana
6. New Hampshire
7. Nevada
8. Oregon
9. Utah
10. Indiana
This is the first time I remember Oregon in the top-ten of this list. These states share one of two attributes: the lack of certain taxes (such as individual income taxes) or low tax rates across all taxes (such as in Utah and Indiana). Meanwhile, it’s “Bring me the usual suspects” for the bottom ten:
41. Louisiana
42. Iowa
43. Maryland
44. Vermont
45. Minnesota
46. Arkansas
47. Connecticut
48. California
49. New York
50. New Jersey
As the Tax Foundation says, “The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the second highest-rate corporate income tax in the country and a particularly aggressive treatment of international income, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes.”
I noted Oregon being in the top ten, but the state is likely going to fall out soon. Oregon adopted a gross receipts business tax, and that’s almost certain to send the state out of the top ten next year. Oregon will be one of only two states with both a corporate income tax and a gross receipts tax.
My home state, Nevada, ranks near the top in individual income tax (fifth), which isn’t a surprise since we don’t have that tax. (A few ‘individuals’ will owe the Nevada gross receipts tax on their businesses, which is why the Silver State doesn’t share the top ranking here.) We also rank towards the top (tenth) in property tax. We’re right in the middle for corporate income tax (25th) which shows the impact of the gross receipts tax. We’re towards the bottom (44th) in sales tax (Nevada sales taxes are relatively high; the rate is 8.25% in Clark County) and in unemployment insurance tax (47th). But overall Nevada is a good state for taxation; this is one reason I moved here in 2011.
Contrast that with California. Corporate taxation is actually in the middle (28th) and property tax is in the top half (16th); the property tax ranking is due to Proposition 13 which Democrats in the Golden State are proposing to partially due away with. Unemployment Insurance Tax ranks 22nd, about average. It’s individual income tax which is the major contributor to California’s low ranking. The state ranks 49th. California also fares poorly in sales tax, ranking 45th.
Note that taxation is just one piece of why businesses relocate. It’s an important component, but it’s not everything. Another major factor is regulatory burden, and that’s another place where California ranks at or near the bottom. This is something I’ll be reporting on in the future.
As to individuals who state that businesses don’t move because of taxes, that’s hogwash. Businesses do move because of this, and will continue to do so. It is just one reason, but it’s a very important reason. California lawmakers who look at the map provided by the Tax Foundation (showing California in dark grey (dark grey indicates a bad score) while numerous neighboring states are in blue (indicated a good score) should be worried. But given how I think the Democratic majority in Sacramento thinks, it’s unlikely they’ll do so.
Tags: Business.Climate