The Tax Foundation released its 2025 State Tax Competitiveness Index (formerly the Business Tax Climate Index). While taxes aren’t everything in where you situate a business, they’re absolutely an important factor. If I have to pay an extra 10% in tax because of state taxation, I need to charge higher prices to make the same living. (Another vital factor are regulations; regulations are a hidden tax on businesses because of the time it takes to comply.) This year, the top ten state tax systems are:
1. Wyoming.
2. South Dakota.
3. Alaska.
4. Florida.
5. Montana.
6. New Hampshire.
7. Texas.
8. Tennessee.
9. North Dakota.
10. Indiana.
The bottom ten are familiar names in poor taxation systems:
41. Massachusetts.
42. Hawaii.
43. Vermont.
44. Minnesota.
45. Washington.
46. Maryland.
47. Connecticut.
48. District of Columbia.
48. California.
49. New Jersey.
50. New York.
This ends up being a bottom eleven as the District of Columbia (which isn’t a state but does have taxes) would tie with California if it were a separate state.
Let’s take a look at two states, and why the Tax Foundation ranks them where they are. First, California (which is ranked 48th out of 50 states).
California combines high tax rates with an uncompetitive tax structure, yielding one of the worst rankings on the Index. The state has a great deal going for it, with its mild climate, excellent research universities, and the ongoing agglomeration effects of Silicon Valley, but a tax code that is uncompetitive and threatens to get worse is increasingly driving jobs to other states.
I couldn’t put it better. California ranks 41st in corporate taxation (it’s ranking this good only because other states are so bad), 49th in individual tax, and 46th in sales tax. Do note that this index doesn’t look at regulations. I can’t speak to regulations in New York or New Jersey (I’m not familiar with them), but regulatory activity in California is a huge factor in driving businesses to neighboring states. Let’s compare that with Florida, a state that many are relocating to.
Florida boasts no individual income tax, a competitive 5.5 percent corporate income tax, and a sales tax rate which—despite the lack of an individual income tax—is lower than those levied in many other southern states. Unlike many of its regional competitors, Florida does not tax capital stock, and its corporate income tax largely adheres to national norms, yielding a highly competitive overall tax code.
Florida ranks first in individual taxation, 16th in corporate taxes, and 14th in sales tax. Is it any wonder why the Sunshine State looks so good to New Yorkers?
Again, taxes are not everything, but they matter. Today, businesses can serve customers throughout the country. Moving a business is never fun, but it’s far easier to do today than it was ten or twenty years ago. States with a poor tax structure are losing businesses and will continue to do so. What’s happening in California is real, and is one of the major reasons that Nevada (which ranks 17th in the State Tax Competitiveness Index) is gaining businesses. As long as California continues down its current path, Nevada will continue to benefit.
