NCPA - National Center for Policy Analysis


May 2, 2006

The Tax Foundation's State Business Tax Climate Index (SBTCI) is a tool for business executives, policymakers and the media to gauge how their states' tax systems compare with other states, says Curtis Dubay and Scott Hodge of the Tax Foundation.

Indeed, SBTCI researchers studied complex variables, and then ranked the 50 states according to the best and worst tax climates:

  • The five best tax environments are Wyoming, South Dakota, Alaska, Florida and Nevada.
  • The worst tax environments are Arkansas, Iowa, Nebraska, Kentucky and Maine.

The Tax Foundation also found that:

  • Business owners must grapple with a wide assortment of other issues besides taxes: proximity to consumers or raw materials, or a highly educated labor pool.
  • While these other concerns may seem more important than a good tax system, taxes can positively or negatively affect a business's position with regard to these very resources.
  • Ultimately, states must strive for tax systems that are economically neutral -- systems that do not favor one economic activity over another, and are reasonable enough not to interfere substantially in business decisions.

According to the researchers, the SBTCI should be used to:

  • Pinpoint the improvements that would enhance their competitiveness the most.
  • Determine where they gain a competitive advantage and work to strengthen their advantage in those areas, or work to improve the factors on which they do not score as well.

In a highly competitive global market, states need to make their tax systems friendly to business in order to facilitate the expansion and growth of business. A simple tax system that is fair to all businesses is the best way for states to have a competitive business tax climate, say the researchers.

Source: Curtis S. Dubay and Scott A. Hodge, "State Business Tax Climate Index," Tax Foundation, No. 51, February 2006.


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