NCPA - National Center for Policy Analysis


September 29, 2009

Kansas is slipping in an important national ranking with large implications for businesses and economic development, according to Paul Soutar, an investigative reporter with the Flint Hills Center.  Kansas dropped one place to 32nd, second to last among its neighbor states, in the Tax Foundation's 2010 State Business Tax Climate Index just released this week.

Other findings:

  • The index ranks South Dakota No. 1, the most "business-friendly," and New Jersey comes in last, as it was in the 2009.
  • Nebraska ranks 33rd, last place among Kansas and its neighbors. Missouri ranks 16th and Colorado 13th. Oklahoma fell to 31st, a 13 place drop from its 18th rank in 2009.

The Index measures the competitiveness of states' tax systems and ranks them based on the taxes that matter most to businesses and business investment: corporate income, individual income, sales, property and unemployment insurance taxes.  Scores are weighted based on relative importance or impact of the tax to a business.  The final ranking is an indication of how well a state's tax system encourages investment by maintaining a broad tax base and low rates.

Businesses, and the jobs they bring, locate and relocate based on how favorable conditions are for long-term growth.  Some conditions, like availability of deep-water ports or weather, are beyond human control so the report stresses that lawmakers need to make wise decisions about what they can control.

"Although the market is now global, the Department of Labor reports that most mass job relocations are from one U.S. state to another rather than to an overseas location."  State lawmakers should be concerned about global competition for jobs and capital, but they need to be more concerned with companies moving from their state to a neighbor, explains Soutar:

  • Kansas received good marks, 6th place nationally, for its approach to unemployment insurance taxes.
  • Individual income taxes (21st) and sales taxes (24th) were also better than average.
  • Property taxes ranked 32nd.

The state's worst mark in the index is for corporate taxes, a 40th place rank.  The state has problems with several factors used to calculate this component of the index: tax credits, treatment of net operating losses and an "other" category that includes the taxation of "throwback," says Soutar.

Proponents of tax credits and other incentives say they're good for luring businesses to a state.  But Padgitt says tax credits or other special incentives mask bigger problems.  "They're often used to make up for a bad broader tax policy."  He also notes that credits and other tax exemptions often result from lobbying efforts on behalf of small segments of the private sector.  This allows government to control and distort business development.

Source: Paul Soutar, "Kansas Becoming Less Business Friendly," Flint Hills Center, September 24, 2009.

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