Best and worst U.S. states for business taxes
States are not created equal when it comes to business and taxes. Each year, several entities report on states that are more tax favorable than other states.
The Tax Foundation, a research organization that promotes lower taxes and reports on tax issues in general, issued its annual report on business and taxes. “Earlier this year, Northrup Grumman chose to move its headquarters to Virginia over Maryland, citing the better business tax climate. Anecdotes such as these reinforce what we know from economic theory: taxes matter to businesses, and those places with the most competitive tax systems will reap the benefits of business-friendly tax climates,” according to the Tax Foundation Report.
The Tax Foundation published its "2011 State Business Tax Climate Index (Eighth Edition)" to act as a gauge for lawmakers, media and businesses. The aim is for policymakers to see how they can make their states more favorable to attract business into the state.
Sites rank states
In the report, The Tax Foundation ranked the best states for businesses in regard to taxes as:
1) South Dakota
2) Alaska
3) Wyoming
4) Nevada
5) Florida
6) Montana
7) New Hampshire
8) Delaware
9) Utah
10) Indiana
The worst states cited by The Tax Foundation in regard to business taxes were:
41) North Carolina
42) Rhode Island
43) Minnesota
44) Maryland
45) Iowa
46) Ohio
47) Connecticut
48) New Jersey
49) California
50) New York
Like the Tax Foundation, the Small Business & Entrepreneurship Council compiles an annual listing of best/worst states in regard to taxes. The SBE Council works to protect small business and promote entrepreneurship.
In April, 2010, it published "Business Tax Index 2010: Best to Worst State Tax Systems for Entrepreneurship and Small Business," which ranks the 50 states and District of Columbia according to the costs of their tax systems for entrepreneurship and small business.
According to the Business Tax Index 2010, the 10 best state tax systems are:
1) South Dakota
2) Texas
3) Nevada
4) Wyoming
5) Washington
6) Florida
7) Alabama
8)Alaska
9) Ohio
10) Colorado
The 10 worst state tax systems are:
42) Massachusetts
43) Oregon
44) Vermont
45) Iowa
46) Maine
47) New York
48) California
49) Minnesota
50) New Jersey
51) District of Columbia
SBE Council President & CEO Karen Kerrigan commented on the report that the group was impressed that political leaders in the leading states refrained from raising taxes on the very people who create jobs. She said, “Sales have been down and business owners continue to struggle with rising costs such as health care coverage. States that have kept taxes low will reap rewards as their businesses recover more quickly and shore up durability for the long term. Low-tax states will become even more competitive for investment and business relocation."
Compare with Caution
The New York Times Oct. 10, 2010 blog post, "States With the Best, and Worst, Business Tax Climates," points out a critical problem in looking at best/worst states for businesses. The group doing the research chooses its own criteria, so rankings will vary based on the agenda of an organization.
ChiefExecutive.net, a website devoted to those who run the businesses being discussed, concurred with the above assessment. It ran an article: "Best and Worst States for Business 2010."
In the annual survey of which states were best/worst overall for businesses, 651 CEOs across the United States ranked Texas first for business, closely followed by North Carolina, Tennessee and Virginia. Taxation and regulation were only one component of their rating. They also looked at quality of workforce and living environment.
When you are trying to decide which states are most favorable to businesses, and you use the various annual reports put out by business and tax groups, make sure you are comparing like issues. Business taxes may be more favorable in one state, but the state’s overall tax system may cause it to be unfavorable for businesses in other ways, such as attracting workforce.
