Another Top-10 List — Best States Tax Environments

Taxes or lack thereof can be a repellent or a magnate to businesses relocating or expanding across the country. As an economist, for example, I would have an issue residing where there was a state income tax.

Taxes are not the only reason why firms stay, move or expand elsewhere. There are a plethora of other reasons why businesses locate where they do: access to transportation, resources, skilled employees, markets.

When I was in graduate school, a valuable course taken that specifically addressed this was named The Theory of the Firm in Economic Space. It was taught by Dr. Melvin Greenhut, a highly renowned economist in the study of why firms locate where they do. In modern terms and in addition to the previously mentioned factors plus taxes, other items of importance in Dr. Greenhut’s included:

  • Jet Airline Service
  • Interstate Highways
  • Rail Service and Ports (for those businesses needing transportation access)
  • And perhaps most importantly: It Had to be a Location Where the CEO Wanted to Live

So how do the state’s compare when it comes to taxes? To answer this, each year the Tax Foundation, a non-profit based in Washington, D.C., ranks the tax friendliness of each state based on five taxes (each with differing weights):

  • Corporate Income Tax
  • Personal Income Tax
  • Retail Sales Tax
  • Unemployment Tax
  • Property Tax

Based on the Tax Foundation analyses, what are the best and worst states from a tax perspective for 2017?

10-26-16a table

 

All 50 states are shown in the graphic with their respective 2017 ranking.

10-26-16a graphic

 

Individual states noted in the 2017 study included:

Arizona – Lowering state corporate income tax rates from 2015 through 2018

Arkansas – Lowered top marginal tax rate from 7 to 6.9 percent but then adopted new rate schedules in which taxpayers at different income levels use distinct rate schedules

Hawaii – Expiration of temporary tax increases eliminated the top three income tax brackets

Indiana – Completed a four-year phase down of corporate income tax rate in 2016, with further rate reductions under new legislation lowering rates through 2022

Louisiana – Added 1 cent increase to state sales tax to meet budget shortfalls (declining energy taxes)

Maine – Lowered overall income tax rates but then added a third tax bracket

New York – Lowered corporate income tax rate from 7.1 to 6.5 percent, reduced capital stock tax rate from 0.15 percent to 0.125 percent

North Carolina – Jumped from 41st place to 11th place in one year: reduced corporate income tax rates, reduced individual tax rate

Oklahoma – Individual income tax rate completed first of two scheduled cuts

Pennsylvania – Fully phased out capital stock tax rate in 2016, improved unemployment tax rate

South Dakota – Sales tax increase from 4.0 to 4.5 percent (due to declining energy sector tax revenues), still zero personal and corporate income tax rates

Texas – Gross receipts tax fell from 0.95 percent to 0.75 percent in 2016, property taxes still a major issue in Texas

District of Columbia – Though declining overall corporate income tax rates, new brackets lowered overall standing

To read the Executive summary from the Tax Foundation click http://taxfoundation.org/article/2017-state-business-tax-climate-index?mc_cid=58577693ae&mc_eid=c79ab314e3

To download the entire study from the Tax Foundation click https://drive.google.com/file/d/0B6586UGJDFOLNU9XbGtVejJxZkU/view

To find out more about the Tax Foundation and vast range of their research click http://taxfoundation.org/

Just as stated last year when writing this topic: Just as words have meaning, taxes had ramifications.

Ted

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