Wyoming Has Best Tax Climate, New York Worst: Report
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Anyone thinking about starting a new business or relocating an existing business might want to consider Wyoming, which has the nation's most business-friendly tax climate, according to the third edition of the Tax Foundation's State Business Tax Climate Index.
The index, released in March, shows tax-heavy New York state as having the worst business tax climate in the nation.
State
Overall Rank
Business Tax Index Rank
Individual Income Tax Index Rank
Sales and Gross Receipts Tax Index Rank
Unemployment Insurance Tax Index Rank
Wealth and Property Tax Index Rank
Alabama
14
14
17
11
4
6
Alaska
3
48
4
1
43
18
Arizona
25
29
20
40
12
12
Arkansas
41
44
32
37
41
13
California
40
39
47
38
20
7
Colorado
12
6
14
26
21
14
Connecticut
39
16
19
33
26
50
Delaware
8
25
26
3
11
10
Florida
4
13
4
20
1
16
Georgia
21
8
27
7
32
27
Hawaii
33
26
44
43
22
3
Idaho
24
21
37
17
46
2
Illinois
23
15
13
41
37
44
Indiana
11
20
10
14
7
19
Iowa
42
46
45
13
28
29
Kansas
34
45
23
28
15
33
Kentucky
44
40
30
23
48
30
Louisiana
36
34
22
49
9
28
Maine
45
47
38
10
42
39
Maryland
22
7
39
8
17
37
Massachusetts
27
36
15
9
49
41
Michigan
26
49
11
32
40
20
Minnesota
38
41
36
34
35
15
Mississippi
29
33
16
46
2
26
Missouri
20
4
25
29
8
17
Montana
9
17
21
5
24
23
Nebraska
43
42
34
36
14
42
Nevada
5
1
7
47
38
11
New Hampshire
6
38
8
2
44
31
New Jersey
49
50
46
27
27
46
New Mexico
28
31
24
48
18
1
New York
50
30
50
39
47
43
North Carolina
37
22
43
35
5
40
North Dakota
31
35
42
18
36
4
Ohio
47
37
48
45
13
48
Oklahoma
17
8
28
15
3
21
Oregon
10
24
33
4
30
8
Pennsylvania
16
32
12
19
16
45
Rhode Island
48
27
40
30
50
49
South Carolina
30
12
29
12
45
32
South Dakota
2
1
1
42
31
9
Tennessee
15
11
9
44
33
38
Texas
7
18
4
21
6
34
Utah
18
5
31
24
23
5
Vermont
46
43
49
16
10
47
Virginia
19
8
18
6
25
36
Washington
13
19
2
50
39
24
West Virginia
35
28
41
31
34
22
Wisconsin
32
23
35
25
29
25
Wyoming
1
1
2
22
19
35
Note: Rankings do not average across to total. States
without a given tax rank as number 1.
Joining Wyoming with the most business-friendly tax climates are South Dakota, Alaska, Florida, Nevada, New Hampshire, Texas, Delaware, Montana, and Oregon. Joining New York with the most hostile tax climates are New Jersey, Rhode Island, Ohio, Vermont, Maine, Kentucky, Nebraska, Iowa, and Arkansas.
Tax Foundation economist Curtis S. Dubay and president Scott A. Hodge compiled the index.
Dubay noted in an interview for this article, "Every one of the best tax systems raises sufficient revenue without imposing at least one of the three major state taxes--sales taxes, personal income taxes, and corporate income taxes."
Spending Is Concern
Tom Jones agrees Wyoming has an excellent business tax climate. He is a former Wyoming state representative who now serves as Wyoming state director of the National Federation of Independent Business.
"We have no income tax, corporate or personal," Jones said. "Along with that, we have low property taxes, too. Our state sales tax is 4 percent. There are two more cents that can be imposed at the local level. So compared to other states, we are very reasonable."
He warns, though, that Wyoming lawmakers have been spending money as fast as it comes in.
"Our tax structure is based on mineral production, and that's a cyclical thing," Jones said. "We are producing lots of coal and gas and oil. But when you have incurred a jillion obligations, it's tough when the bust comes, and it will come. A bust hit in 1986, and I can't convince [lawmakers] it's going to happen again."
NY Pol Defends Taxes
New York state Rep. Ivan LaFayette (D-Jackson Heights) said high taxes are no problem if citizens receive good value for the money they pay.
"In New York City the business climate must be good despite the taxes," LaFayette said. "There isn't an empty building or store. They can't build office buildings fast enough. Where else do you get first-class cultural museums that are free, free parks, free pre-K education, public hospitals that are ranked among the best in the U.S., colleges at minimal tuition and high quality? You get what you pay for."
LaFayette also pointed out New York has cut taxes in recent years.
"We have lowered the state income tax a number of times," LaFayette said. "I was in California recently, and the [personal income] tax there is over 9 percent. New York's income tax is 7-something percent. We've taken the sales tax off clothing under $100. We're taking it off of other items, too.
"When people ask why are taxes so high, I say you can't go just by how high they are," LaFayette said. "If taxes bought what are your priorities--safety, cleanliness, a good environment, culturally something good--then you think your taxes are well spent."
Index Stresses Fundamentals
Hodge said the goal of the index is to focus lawmakers on good tax fundamentals in their states, rather than short-term tax abatements and exemptions targeted to specific businesses or industries.
"States do not enact tax changes in a vacuum," said Hodge. "Every tax change will affect a state's competitive position relative to its neighbors, as well as globally. The temptation is for state lawmakers to lure high-profile companies with packages of tax bonuses, but that strategy can backfire."
For example, in 2000, officials in Columbus, Ohio lured a moving company with a five-year package of tax goodies. In 2004, the company had not only failed to add 100 jobs as promised, but it had actually fired 98 employees, prompting lawmakers to yank the final year of tax breaks.
"Ohio's experience shows preferential tax bonuses don't guarantee jobs will stay permanently," said Hodge. "Often they mask deeper flaws in state taxes."
Flatness Essential
Generally the tax climate index rewards tax codes that have low, flat tax rates that apply to everyone. This makes tax law simpler and more transparent and avoids double taxation. The worst state tax codes, according to the study, tend to have:
- complex, multi-rate corporate and individual income taxes;
- above-average sales tax rates that don't exempt business-to-business purchases;
- complex, high-rate unemployment tax systems; and
- high effective property tax rates, as well as a host of other wealth-based taxes.
"The ideal tax system, whether at the state, federal, or international level, should be neutral to business activity," said Dubay. "In such a system, people would base their economic decisions on the merits of the transactions rather than the tax implications."
Each state's laws and tax collections were assessed as of the beginning of the 2006 fiscal year, which for the states was July 1, 2005. The rankings reflect the business tax climate at that time and do not consider legislative action since then.
William Ahern (ahern@taxfoundation.org) is communications director at the Tax Foundation in Washington, D.C. Steve Stanek (stanek@heartland.org) is managing editor of Budget & Tax News.
For more information ...
The Tax Foundation's State Business Tax Climate Index is available online at http://www.taxfoundation.org/publications/show/78.html.
