NCPA - National Center for Policy Analysis


January 13, 2005

The U.S. Department of Labor says less than 1 percent of job relocations have been outsourced overseas. This leaves 99 percent that have shifted from one state to another. The Tax Foundation, in their latest study on state business climates, says businesses are moving to states that keep taxes low and simple.

The competitiveness of each state's tax system was ranked in the form of an index, normalized to a national average of 5. In the analysis, each state's corporate income tax, individual income tax, consumption tax, unemployment insurance tax, and their fiscal balance were considered. It determined that:

  • South Dakota, Florida, Alaska, Texas and New Hampshire are the five states most conducive to new and expanding businesses; South Dakota had the highest index score of 7.4.
  • Hawaii, New York, Minnesota, West Virginia and Rhode Island have the five least hospitable tax systems, with Hawaii ranking last with a score of 3.7.

The most competitive tax systems were usually found in states that raise sufficient tax revenue without one of the major taxes (such as a sales tax or income tax). Conversely, the least competitive were found in states with complex, multi-rate corporate and individual tax codes, and higher sales tax rates.

Source: Scott A. Hodge, "State Business Tax Climate Index: An Executive Summary,"Tax Foundation, October 2004.


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