Written by TaxFoundation.org
Tax Foundation Releases Annual Report on "Business-Friendliness" of State Tax Systems
Washington, DC, September 22, 2009 -- South Dakota has the most "business-friendly" tax system, and New Jersey has the least, according to the Tax Foundation's 2010 State Business Tax Climate Index released today. The Index measures the competitiveness of the 50 states' tax systems and ranks them accordingly based on the taxes that matter most to businesses and business investment: corporate income, individual income, sales, property and unemployment insurance taxes.
The states are scored on these taxes, and the scores are weighted based on the relative importance or impact of the tax to a business. Keeping a state competitive in today's global marketplace can be difficult, but there is one factor lawmakers have direct control over: the quality of state tax systems. The Index measures how well a state's tax system encourages investment by maintaining a broad tax base and low rates.
"When policymakers are considering tax changes in their states, they should remember two rules: Taxes matter to business, and states do not enact tax changes - increases or cuts - in a vacuum," said Kail Padgitt, Ph.D., who authored Tax Foundation Background Paper No. 59, "2010 State Business Tax Climate Index." The Index represents the tax climate of each state as of July 1, 2009, the first day of the standard 2010 fiscal year, and is available online at http://www.taxfoundation.org/research/show/22658.html.
The top 10 states in the 2010 Index, from 1st to 10th, are South Dakota, Wyoming, Alaska, Nevada, Florida, Montana, New Hampshire, Delaware, Washington and Utah. The bottom 10 states, from 41st to 50th, are Vermont, Wisconsin, Minnesota, Rhode Island, Maryland, Iowa, Ohio, California, New York and New Jersey.
Oklahoma saw the biggest drop in ranking this year - from 19th in 2009 to 31st in 2010 - due not to legislative changes, but to the fact that the Tax Foundation was able to obtain much more detailed nationwide data on local-option sales taxes, which are much higher in Oklahoma than in most states (above 4 percent in several municipalities).
Kentucky's ranking improved the most - up 14 spots from 34th in 2009 to 20th in 2010. Many economically damaging changes were enacted in other states that previously ranked better than Kentucky - especially in the personal income tax - so other states' rankings fell while Kentucky remained stable.
Other tax changes that affected states' rankings include enactment of so-called "millionaires' taxes" on high-income earners (often on income far less than $1 million) in states such as Hawaii, New Jersey and Oregon. New Jersey remained dead last, as it was in the 2009 Index, and Hawaii and Oregon dropped in rank by two spots to 24th and six spots to 14th, respectively. Ten states also enacted cigarette tax increases this year: Arkansas, Florida, Hawaii, Kentucky, Mississippi, New Jersey, New Hampshire, Rhode Island, Vermont and Wisconsin.
Tax Foundation Background Paper No. 59, "2010 State Business Tax Climate Index," is available online at http://www.taxfoundation.org/research/show/22658.html. The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.