January 25, 2012

2012 State Business Tax Climate Index Released

by TF Staff

Today we release our new 2012 State Business Tax Climate Index.

Each year we produce the Index to enable business leaders, government policymakers, and taxpayers to gauge how their states' tax systems compare. While total taxes paid is a relevant measure, another is how the elements of a state tax system enhance or harm the competitiveness of a state's business environment. The Index looks at over 100 variables in individual income tax, corporate income tax, sales tax, unemployment insurance tax, and property tax to reduce these many complex considerations to an easy-to-use ranking.



The 10 best states in this year's 2012 Index are Wyoming, South Dakota, Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas, and Utah. Many of these states do not have one or more of the major taxes, and thus do not have the associated complexity and distortions.

The 10 lowest ranked, or worst, states in the 2012 Index are Iowa, Maryland, Wisconsin, North Carolina, Minnesota, Rhode Island, Vermont, California, New York, and New Jersey. While the bottom three states remained steady compared with 2011, Rhode Island improved modestly by implementing a revenue-neutral income tax reform. The states in the bottom ten generally have complex, non-neutral taxes with comparatively high rates.

Illinois moved most dramatically in its Index rank over the past year, falling twelve places after a significant income and corporate tax increase.

We hope that providing this information to you helps gauge how your tax system compares and provides a roadmap for improving the business tax climate. In 2011, the Index report was downloaded 487,000 times and referenced in 320 major media articles and 4 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 2012 Index reflects state tax systems as they stood on July 1, 2011, the start of the 2012 Fiscal Year in most states. Read the 56-page Index report and the results at http://www.taxfoundation.org/research/show/22658.html. (Download a PDF version here.)

2012 State Business Tax Climate Index Ranks and Component Tax Ranks
State Overall Rank Corporate Tax Rank Individual Income Tax Rank Sales Tax Rank Unemployment Insurance Tax Rank Property Tax Rank
Alabama 20 16 18 41 11 6
Alaska 4 27 1 5 28 13
Arizona 27 28 17 50 1 5
Arkansas 31 36 27 38 17 18
California 48 43 50 40 13 17
Colorado 16 20 16 44 23 9
Connecticut 40 25 31 30 32 50
Delaware 12 50 28 2 3 14
Florida 5 12 1 19 5 24
Georgia 34 9 40 12 22 39
Hawaii 35 4 41 31 30 15
Idaho 21 19 26 23 48 2
Illinois 28 45 13 33 43 44
Indiana 11 18 10 11 16 11
Iowa 41 48 32 25 35 36
Kansas 25 35 21 32 6 28
Kentucky 22 26 25 8 47 19
Louisiana 32 17 24 49 4 23
Maine 37 47 30 10 40 38
Maryland 42 14 46 9 45 40
Massachusetts 24 34 15 17 49 47
Michigan 18 49 11 7 44 30
Minnesota 45 42 44 36 34 26
Mississippi 17 11 19 28 8 29
Missouri 15 8 23 26 9 7
Montana 8 15 20 3 20 8
Nebraska 30 33 29 27 12 37
Nevada 3 1 1 42 42 16
New Hampshire 6 46 9 1 39 41
New Jersey 50 39 48 46 25 49
New Mexico 38 38 33 45 14 1
New York 49 23 49 37 46 45
North Carolina 44 29 43 47 7 35
North Dakota 29 21 35 15 31 4
Ohio 39 22 42 29 10 33
Oklahoma 33 7 38 39 2 12
Oregon 13 31 34 4 33 10
Pennsylvania 19 44 12 21 37 42
Rhode Island 46 40 36 24 50 46
South Carolina 36 10 39 20 38 21
South Dakota 2 1 1 34 41 20
Tennessee 14 13 8 43 27 48
Texas 9 37 7 35 15 31
Utah 10 5 14 22 24 3
Vermont 47 41 47 14 19 43
Virginia 26 6 37 6 36 27
Washington 7 30 1 48 18 22
West Virginia 23 24 22 18 26 25
Wisconsin 43 32 45 16 21 32
Wyoming 1 1 1 13 29 34
Note: Rankings do not average across to total. States without a given tax rank equally as number 1.
Source: Tax Foundation