12:00 am
October 17, 2013
Once again, the Washington, D.C.-based Tax Foundation gives Washington high marks for its business tax climate. The map below shows how the 50 states fare on the annual report. The full report is here. As we’ve written before, the Tax Foundation methodology favors states without an income tax.
Here’s from our post on last year’s index, which also ranked Washington No. 6.
The Tax Foundation acknowledges this feature (some may call it a bug) of the index.
The absence of a major tax is a dominant factor in vaulting many of these ten states to the top of the rankings. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate tax, the individual income tax, or the sales tax…
The lesson is simple: a state that raises sufficient revenue without one of the major taxes will, all things being equal, have an advantage over those states that levy every tax in the state tax collector’s arsenal.
TF uses pretty much the same language again this year.
The absence of a major tax is a dominant factor in vaulting many of these ten states to the top of the rankings. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate tax, the individual income tax, or the sales tax. Wyoming, Nevada, and South Dakota have no corporate or individual income tax; Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax.
But this does not mean that a state can- not rank in the top ten while still levying all the major taxes. Indiana, which ousted Texas from the top ten this year (see p. 5), and Utah have all the major tax types, but levy them with low rates on broad bases.
Since not much has changed, I’ll stand by these comments from last year.
We’ve pointed out before that general indexes like this provide only general guidance, because businesses respond differently to different tax structures (not to mention the issue of tax incentives). TF did a great job illustrating the differences in Location Matters, a study published last March. In this column I discuss some of the differences among the business tax climate index, the location study, and another measure of business tax burdens published by the Council on State Taxation.
The Tax Foundation does good, credible work and the researchers ably justify their weighting scheme. Business owners here often disagree with Washington’s high ranking and rail against the business and occupation tax; at the same time, many of them agree with TF’s indictment of the personal income tax.
For more on this general topic, read Characteristics of a Healthy Business Climate.