Where will your company pay the least tax? Whether you’re just starting a business, expanding, or thinking of relocating this is an important consideration.
The Tax Foundation, a non-partisan tax research group based in Washington, D.C., has released their State Business Tax Climate Index for 2010, a study that ranks the best and worst states for business taxes. These ratings take into account individual income taxes, major business taxes, sales taxes, unemployment insurance taxes, and taxes on wealth or assets such as property.
Most Tax-Friendly States for Business
The states that top the Tax Foundation list as the most tax-friendly are:
1. South Dakota: No corporate or individual income tax
2. Wyoming: No corporate or individual income tax
3. Alaska: No individual income tax or state-level sales tax; however, there are local jurisdictions that impose sales taxes
4. Nevada: No corporate or individual income tax
5. Florida: No individual income tax
6. Montana: No sales tax
7. New Hampshire: No sales tax
8. Delaware: No sales tax, but second worse corporate income tax in the nation; however, does have a favorable business law environment
9. Washington: No individual or corporate income tax
10. Utah: Assesses all major tax types, but has low property tax rates and a favorable unemployment insurance tax system
The absence of a major state tax is a big part of determining the top ten. However, Texas, which lacks an individual income tax, came in just short of the top ten at number eleven. According to the study, this is due to the fact that they impose a tax on intangible property (stocks, bonds, etc.) and do not recognize LLC’s or S-Corporations.
Worst States for Business
Rounding out the bottom five on the list, making them the least tax-friendly for business, are:
49. New York
50. New Jersey
Why the Low Rankings?
Ohio made the bottom of the list due to their inclusion of an intangible property tax and higher property taxes in general. They also got low scores for their gross receipts tax that offers no deduction for cost of goods sold or employee compensation.
California owes its low ranking to an increase in state-wide sales tax to 8.25%, making it the highest state-level rate in the nation. Other factors included an increase of 0.25% in each personal income tax bracket, a relatively high corporate income tax rate of 8.84% and the inclusion of an individual and corporate Alternative Minimum Tax (AMT).
New York dropped down to be ranked 49th this year. New York can blame the fall on the enactment of two new personal income tax brackets this year, with a new top rate of 8.97 percent, an increase of 30 percent over the prior year. If you live in New York City, which tacks on an extra 3.648 personal income tax, you have the honor of living in the city with the highest state-local combined income tax rate in the nation.
New York’s neighbor, New Jersey is the only state that has a more penalizing tax system, coming in as the worst in the nation for business. New Jersey receives this title due to their uniformly high rates in most tax types. The state received poor ratings in corporate income tax, personal income tax, and sales tax.
More information: See the entire text of the 2010 State Business Tax Climate Index