NCPA - National Center for Policy Analysis

Wyoming Ranks Best, New Jersey Worst, for Business Taxes

October 29, 2014

The Tax Foundation has released its annual business tax climate index, ranking the fifty states for the strength of their tax systems for business. According to Scott Drenkard and Joseph Henchman, the report's authors, the state's with the highest scores tended to lack major taxes like the corporate tax, sales tax or individual income tax, while the states with the lowest scores had confusing systems with high rates. Notably, Indiana and Utah -- while they do have all of the typical major taxes -- still scored in the top 10 because they impose low rates on a broad tax base.

According to the rankings, the top 10 states were Wyoming, South Dakota, Nevada, Alaska, Florida, Montana, New Hampshire, Indiana, Utah and Texas. At the bottom of the list were Iowa, Connecticut, Wisconsin, Ohio, Rhode Island, Vermont, Minnesota, California, New York and -- in last place -- New Jersey.

Drenkard and Henchman explain that a state tax system is critically important to economic growth, because a state's tax system is what can attract -- or repel -- new businesses and risk-taking. Taxes, they write, always diminish a company's profits, and when a business pays money to the government, it passes those costs elsewhere. Whether it is consumers who suffer from the taxes in the form of higher prices, employees who see lower wages or fewer jobs or shareholders who receive lower dividends, taxes undoubtedly have an impact.

The report identifies some changes in the rankings from last year's index to this year, which included the state of North Carolina. North Carolina jumped from 44th place up to 16th, based on its recent tax system overhaul which replaced its multi-bracketed income tax system with a single bracket with a flat rate, reduced its corporate income tax and simplified its sales tax.

Source: Scott Drenkard and Joseph Henchman, "2015 State Business Tax Climate Index," Tax Foundation, October 28, 2014. 

 

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