NCPA - National Center for Policy Analysis

Business-Friendly States

August 4, 2003

A new study by the Tax Foundation ranks the 50 states based on how "business-friendly" their tax policies were in early 2003.

Because taxes affect business decisions, job creation and retention, plant location, competition and the long-term health of a state's economy, each state is constantly competing with its neighbors to attract new companies with tax break packages.

According to the rankings:

  • Wyoming, New Hampshire, Nevada, Colorado and Alaska have the most business-friendly tax systems in the United States.
  • Nebraska, Ohio, Arkansas, California and Mississippi have the most burdensome and complicated tax systems.
  • The most efficient and prosperous states are marked by tax neutrality -- favoring all business activity, not large companies over small ones or existing companies over start-ups.
  • The least competitive tax systems are found in states with complex, multi-rate corporate and individual tax codes, high sales taxes, and tax burdens that have grown faster than citizens' income.

According to the authors, every tax change will affect a state's competitiveness relative to neighboring states. Entrepreneurial states can take advantage of the tax increases of their neighbors to attract businesses and increase prosperity.

Source: Scott Hodge et al., "State Business Tax Climate Index," Background Paper No. 41, May 2003, Tax Foundation.


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