2013 State Business Tax Climate Index: Which States Have the Best Tax Systems for Business?

Tax Foundation ^ | 10/14/2012 | By: Joseph Henchman and Scott Drenkard

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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 2013 Index are Wyoming, South Dakota, Nevada, Alaska, Florida, Washington, New Hampshire, 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 Maryland, Iowa, Wisconsin, North Carolina, Minnesota, Rhode Island, Vermont, California, New Jersey, and New York. New York slid past New Jersey for the bottom spot by having the worst individual income tax, the sixth-worst unemployment insurance taxes, and the sixth-worst property taxes. (The overall scores for the two states remain close, New Jersey at 3.403 and New York at 3.395.) The states in the bottom ten generally have complex, non-neutral taxes with comparatively high rates.

Michigan moved most dramatically in its Index rank over the past year, rising from 18th best to 12th best. Michigan eliminated its problematic Michigan Business Tax (MBT), which taxed corporate profits at a 4.95 percent rate, corporate gross receipts at a 0.8 percent rate, and surtaxed both those things at a 21.99 percent rate. Michigan abolished that tax along with the associated generous tax incentives, replacing the entire system with a flat 6 percent corporate income tax. On the corporate component, Michigan improved from 49th to 7th, pushing its overall rank up six places.

Maine also rose significantly, from 37th best to 30th best. This improvement occured in part due to the expiration of a ban on business tax loss carry forwards and the suspension of the individual income alternative minimum tax (AMT).

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 2013 Index reflects state tax systems as they stood on July 1, 2012, the start of the 2013 Fiscal Year in most states. Read the 56-page Index report by Scott Drenkard and Joseph Henchman and the results at http://taxfoundation.org/article/2013-state-business-tax-climate-index. (Download a PDF version here.)

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[Past Your Eyes]

We’re #7!

[SeekAndFind]

RE: We’re #7!

So, will #7 go Romney or Obama this time?

[coder2]

#1 (Wyoming here) and couldn't be prouder.. Moved the 2 of us and our small business out of #45 (MN) last year and boy oh boy we saw an IMMEDIATE difference.

Dealing with the state of Wyoming has been an absolute pleasure and they have stated time and time again, that they love business and welcome anyone to come here and open up shop.

An absolute pleasure and a huge difference in MN, where they just raise taxes and deny deny deny that anyone is moving out because of the bad business climate they built. But I know many just like us that have moved.

[j_k_l]

Tennessee should be in the top 10.

No income tax.

[PapaNew]

I'm taking a federal income tax class and realize more than ever the intrusive and oppressive nature of the whole income tax concept whether state or federal. At least on the federal side, would to God that we could replace the 16th Amendment with an amendment repealing authorization for an income tax and replacing it with a sales tax. Let the powers that be take it from there but preferably no higher than around 15%. Among other things our country would experience an unprecedented economic boom.

It would of course be suicide to get a sales tax passed without repealing the 16th Amendment as it would just be adding on another layer of tax.

[Past Your Eyes]

Still to be determined.
Two surprises in this map: N. Carolina and Conn. I would have expected the former to be light blue and the latter dark.

[ZirconEncrustedTweezers]

As a Californian, all I can say is thank God for New York and New Jersey!

[Past Your Eyes]

The trouble with Wyoming is you have to drive so far just to look at somebody else’s trees. “;^o

[Past Your Eyes]

Maybe it’s your 17.25% rooms and meals tax. :(

[SeekAndFind]

RE: As a Californian, all I can say is thank God for New York and New Jersey!

“I complained I had no shoes, until I met a man who had no feet”

[Ditto]

#3 but #1 in unemployment. I don’t get it!

Nevada's two biggest industries, tourism and construction, are both down during the Obama recession.

[Nevadan]

Nevada's legislature meets every 2 years. The Democrats have consistently tried to knock Nevada off the top of this list for years, treating business owners as the enemies not paying “their fair share” while proposing a host of new programs and items to spend taxpayer money on.

Nevada was a red state for decades. It is only recently with the influx of Hispanics and Californians who have primarily voted Democrat that it has turned blue. Add to the mix the recession and Obama’s hit to Nevada's economy by telling Americans not to go to Las Vegas, Nevada has suffered economically.

[CapnJack]

Good question. Nh court said it’s ok for college kids to vote here if from out of state. This is what will probably swing it for zero

[coder2]

LOL -- very true where we live (we have 4 and that is a lot), but there are parts of WY, where there are dense forests.

Coming from MN, I dearly miss the lakes and the trees, but that is a price to pay to live in a state where freedom still means something.

[Little Bill]

Eyes: I was going retire to Wyoming, some of my Grandmothers family settled the place, one step ahead of the Law so to speak.

If you get reelected we got to talk, I have a project, I am going to drag Sam Cataldo into if he is elected, about something that has pissed me off for years and falls into an area that General Court has some clout in, just get reelected and we can have some fun.

[Past Your Eyes]

Here in NH it’s a constant battle to beat back the trees from taking over my fields and turning them back into a wilderness.

[Past Your Eyes]

Sam is a great guy and I would look forward to whatever it is you are talking about. Even though Sam is about 10 years older than I am, he seems to have much more energy!

[Little Bill]

He claims he is descended from an Irish Saint that ended up in Sicily, I told him that my Stepfather told me that anyone South of Rome were Turks and Brutti, beasts. His answer was what do a lot of Germans know.

Great Guy.