Which State Has the Best Tax Climate for Business?

Oct 17, 2012

Wyoming has the country’s most business-friendly tax climate. That's the finding of the 2013 State Business Tax Climate Index released by the nonpartisan Tax Foundation.

Each state is given an overall ranking based on its score in five categories: corporate taxes, individual income taxes, sales taxes, unemployment taxes, and property taxes.

The top three states - Wyoming, South Dakota, and Nevada - have no corporate or income taxes. That environment is especially helpful for small business owners who pay taxes using the income tax rate.

“The lesson is simple: a state that raises sufficient revenue without one of the major taxes will, all things being equal, have an advantage over those states that levy every tax in the state tax collector’s arsenal,” says Scott Drenkard, an economist at the Tax Foundation, a group that advocates for tax reform.

Wyoming also ranked high in the National Chamber Foundation’s Enterprising States report.

“Wyoming is a top-10 state in four business-climate metrics, including first in overall state business-tax climate and first in tax environment for mature firms. The state also ranks ninth in tax environment for new firms, making it one of the most advantageous overall for business.”

The states in the bottom 10 of the Tax Foundation index suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New York ranks the worst—despite its moderate corporate tax rate of 7.1%—because it’s saddled with the worst individual income tax, the sixth-worst unemployment insurance taxes, and the sixth-worst property taxes.

Interesting side note: Wyoming also has one of the country’s lowest beer tax (2 cents per gallon), followed by Missouri (6 cents), and Wisconsin (6 cents). Coincidence? We’re not sure, but let’s raise a cold one to Wyoming.

The 10 best states in this year’s Index are:

1.      Wyoming

2.      South Dakota

3.      Nevada

4.      Alaska

5.      Florida

6.      Washington

7.      New Hampshire

8.      Montana

9.      Texas

10.    Utah

The 10 lowest ranked, or worst, states in this year’s Index are:

41.  Maryland

42.  Iowa

43.  Wisconsin

44.  North Carolina

45.  Minnesota

46.  Rhode Island

47.  Vermont

48.  California

49.  New Jersey

50.  New York

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