This morning we released our 2015 State Business Tax Climate Index, which enables business leaders, government policymakers, and taxpayers to gauge how their states' taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. systems compare.
While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how well states structure their tax systems, and provides a road-map to improving these structures. The Index looks at over 100 variables in the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. , corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. , sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. , unemployment insurance tax, and property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. to reduce these many complex considerations to an easy-to-use ranking.
The 10 best states in this year's 2014 Index are Wyoming, South Dakota, Nevada, Alaska, Florida, Montana, New Hampshire, Indiana, Utah, and Texas. Many of these states score particularly well because they go without one of the major taxes, but this does not mean that a state cannot rank in the top ten while still levying all the major taxes. Indiana and Utah, for example, have all the major tax types, but levy them with low rates on broad bases.
The 10 lowest ranked, or worst, states in the 2014 Index are New Jersey, New York, California, Minnesota, Vermont, Rhode Island, Ohio, Wisconsin, Connecticut, and Iowa. The states in the bottom 10 suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. , and maintains some of the worst structured individual income taxes in the country.
This edition is an exciting one for the Index, because North Carolina has improved dramatically from 44th place last year to 16th place, the single largest rank jump in the history of the Index. The state improved its score in the corporate, individual, and sales tax components of the Index, and as the reform package continues to phase in, the state is projected to continue climbing the rankings. See page three for details.
Nebraska improved five ranks overall, from 34th place to 29th, due to improvements in its corporate and individual income tax systems, including reform of corporate net operating loss carryforwards, a repeal of the individual alternative minimum tax, and indexation of the brackets of the individual income tax code. The legislature there is considering more impactful tax reform next year as well. See page four for details.
Maine is the only state to enact a rate increase in one of its major taxes since last year, as the sales tax rate went from 5.0 to 5.5 percent. This, combined with North Carolina and Nebraska leapfrogging up in the rankings, resulted in Maine falling five rankings in this year’s edition.
We also saw notable changes in North Dakota, New York, and Wisconsin, which are listed on pages four and five.
The report even has a list of forthcoming changes you can expect in future editions. Beneficial reforms that are phasing in on other states include the District of Columbia and Indiana, which are phasing in corporate and individual income tax rate reductions; and Arizona, New Mexico, New York, and Rhode Island, which are phasing in corporate rate reductions.
Illinois, Kansas, Missouri, and Pennsylvania will be important to watch too, as those states have all seen high profile budget battles in the last year.
We hope that this information helps you gauge how your tax system compares and provides a roadmap for improving the business tax climate. Each year, the Index report is downloaded over half a million times and is referenced in hundreds of major media articles and in several State of the State addresses. The rankings are used in other organization's rankings as the tax component, and recent academic evidence found correlation between Index component ranking and state wage and economic growth.
The 2015 Index represents the tax climate of each state as of July 1, 2014, the first day of the standard 2015 state fiscal year. Read the 75-page report by Scott Drenkard and Joseph Henchman and the results at https://taxfoundation.org/index
|
Overall Rank |
Corporate Tax Rank |
Individual Income Tax Rank |
Sales Tax Rank |
Unemployment Insurance Tax Rank |
Property Tax Rank |
|
|
Alabama |
28 |
27 |
23 |
41 |
25 |
10 |
|
Alaska |
4 |
30 |
1 |
5 |
24 |
32 |
|
Arizona |
23 |
24 |
19 |
49 |
4 |
6 |
|
Arkansas |
39 |
40 |
28 |
44 |
39 |
19 |
|
California |
48 |
34 |
50 |
42 |
14 |
14 |
|
Colorado |
20 |
12 |
16 |
43 |
35 |
22 |
|
Connecticut |
42 |
32 |
34 |
31 |
20 |
49 |
|
Delaware |
14 |
50 |
33 |
1 |
2 |
13 |
|
Florida |
5 |
14 |
1 |
12 |
3 |
16 |
|
Georgia |
36 |
8 |
42 |
17 |
36 |
30 |
|
Hawaii |
30 |
9 |
37 |
15 |
28 |
12 |
|
Idaho |
19 |
21 |
24 |
22 |
46 |
3 |
|
Illinois |
31 |
47 |
11 |
34 |
38 |
44 |
|
Indiana |
8 |
22 |
10 |
10 |
7 |
5 |
|
Iowa |
41 |
49 |
32 |
23 |
33 |
38 |
|
Kansas |
22 |
38 |
18 |
30 |
9 |
28 |
|
Kentucky |
26 |
29 |
30 |
11 |
45 |
17 |
|
Louisiana |
35 |
23 |
27 |
50 |
6 |
24 |
|
Maine |
33 |
45 |
22 |
9 |
42 |
40 |
|
Maryland |
40 |
16 |
45 |
8 |
21 |
41 |
|
Massachusetts |
24 |
37 |
13 |
21 |
48 |
45 |
|
Michigan |
13 |
10 |
14 |
7 |
47 |
27 |
|
Minnesota |
47 |
44 |
46 |
37 |
29 |
34 |
|
Mississippi |
18 |
11 |
21 |
28 |
8 |
33 |
|
Missouri |
17 |
4 |
29 |
29 |
12 |
7 |
|
Montana |
6 |
18 |
20 |
3 |
18 |
8 |
|
Nebraska |
29 |
31 |
25 |
27 |
13 |
39 |
|
Nevada |
3 |
1 |
1 |
39 |
43 |
9 |
|
New Hampshire |
7 |
48 |
9 |
2 |
44 |
43 |
|
New Jersey |
50 |
41 |
48 |
48 |
32 |
50 |
|
New Mexico |
38 |
35 |
35 |
45 |
10 |
1 |
|
New York |
49 |
20 |
49 |
40 |
31 |
46 |
|
North Carolina |
16 |
25 |
15 |
33 |
11 |
29 |
|
North Dakota |
25 |
19 |
36 |
20 |
16 |
2 |
|
Ohio |
44 |
26 |
47 |
32 |
5 |
20 |
|
Oklahoma |
32 |
7 |
40 |
38 |
1 |
11 |
|
Oregon |
12 |
36 |
31 |
4 |
30 |
15 |
|
Pennsylvania |
34 |
46 |
17 |
24 |
50 |
42 |
|
Rhode Island |
45 |
43 |
38 |
26 |
49 |
47 |
|
South Carolina |
37 |
13 |
41 |
18 |
40 |
21 |
|
South Dakota |
2 |
1 |
1 |
35 |
41 |
18 |
|
Tennessee |
15 |
15 |
8 |
47 |
26 |
37 |
|
Texas |
10 |
39 |
6 |
36 |
15 |
36 |
|
Utah |
9 |
5 |
12 |
19 |
22 |
4 |
|
Vermont |
46 |
42 |
44 |
16 |
17 |
48 |
|
Virginia |
27 |
6 |
39 |
6 |
37 |
26 |
|
Washington |
11 |
28 |
6 |
46 |
19 |
23 |
|
West Virginia |
21 |
17 |
26 |
25 |
23 |
25 |
|
Wisconsin |
43 |
33 |
43 |
14 |
27 |
31 |
|
Wyoming |
1 |
1 |
1 |
13 |
34 |
35 |
|
District of Columbia |
45 |
38 |
35 |
42 |
27 |
44 |
Source: Tax Foundation.
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