NCPA - National Center for Policy Analysis

2012 State Business Tax Climate Index

January 30, 2012

The Tax Foundation recently published its 2012 State Business Tax Climate Index -- a comprehensive state-by-state comparative analysis of distinct tax climates across the country.  The index delves far beyond each state's corporate income tax system, and includes as variables four other taxes: individual income taxes, sales taxes, unemployment insurance taxes and property taxes, says Mark Robyn, an economist at the Tax Foundation.

  • Wyoming topped the rankings as the state with the best tax environment for corporations, followed by South Dakota, and then Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas and Utah.
  • Of those states in the top 10, each one has nullified at least one of the three major taxes (corporate, individual income or sales), with Wyoming, South Dakota and Nevada eliminating both the corporate and individual income taxes.
  • New Jersey was found to be the state with the worst tax environment, followed by New York, and then California, Vermont, Rhode Island, Minnesota, North Carolina, Wisconsin, Maryland and Iowa.
  • New Jersey scored at the bottom by having the third-worst individual income tax, the fifth-worst sales tax, the 13th-worst corporate tax and the second-worst property tax.

The methodology for the study is complex, drawing on all five tax systems and including 118 variables that allowed for in-depth assessment of tax structures.  Furthermore, each system was not treated as being equally important, as some carry more weight in business relocation decisions than others.  The following are the weights assigned to each respective type of tax:

  • Individual income tax -- 33.1 percent.
  • Sales tax -- 21.4 percent.
  • Corporate tax -- 20.3 percent.
  • Property tax -- 14.1 percent.
  • Unemployment insurance tax -- 11.1 percent.

The aggregation of each state's scores and comparison with other states should be recognized as important information, not only for business leaders looking for possible relocation options, but also for state lawmakers.  Though the media emphasizes the globalization of commerce and international competition to attract businesses, the Labor Department points out that most mass job relocations are from one state to another.  For this reason, states should concern themselves with their tax environment, as this undoubtedly affects their attractiveness in this highly competitive atmosphere.

Source: Mark Robyn, "2012 State Business Tax Climate Index," Tax Foundation, January 25, 2012.

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