Any businessperson knows taxes can make a significant difference to their company's bottom line. And while recent tax inversions by multinational corporations have highlighted the effects of federal tax policy, local and states taxes can also play a major role determining whether a business thrives, fails, or even relocates.
Any businessperson knows taxes can make a significant difference to their company’s bottom line. And while recent tax inversions by multinational corporations have highlighted the effects of federal tax policy, local and states taxes can also play a major role determining whether a business thrives, fails, or even relocates.
The Tax Foundation, a conservative think tank in Washington DC, each year compiles a list of the states with the best and worst business tax climates. States are ranked based on their corporate, individual income, sales, unemployment insurance, and property taxes. The foundation considers rates as well as complexity, and other factors.
The top state overall was Wyoming, which has been atop the Tax Foundation’s list each of the past 3 years. Wyoming was followed by South Dakota, Nevada, Alaska, and Florida.
The biggest positive mover on the list was North Carolina, which jumped from No. 44 last year to No. 16 this year. The state moved from a multi-bracket income tax system with a top tax rate of 7.75% to a single-bracket system with a rate of 5.8%. The state is also in the process of decreasing its corporate tax rate.
Maine saw the largest drop of any state — falling from 28th to 33rd. The change was largely due to an increase in the state’s sales tax, from 5.0% to 5.5%.
The data used to compile the list are based on conditions as of July 1, thus more recent tax code changes are not reflected.
Here are the bottom-dwellers, the 7 states with the worst business tax climates, according to the Tax Foundation.
Corporate Tax Rank: 26
Income Tax Rank: 47
Property Tax Rank: 20
Ohio fell 2 spots this year as other states improved their tax climates. The state’s main Achilles’ heel is its income tax scheme, a complicated, 9-bracket system with a top rate of 5.421%. The state ranks high for its unemployment insurance taxes, which are the fifth-lowest in the country. The state charges a 5.75% sales tax.
Corporate Tax Rank: 43
Income Tax Rank: 38
Property Tax Rank: 47
Rhode Island may be small, but it packs a big punch when it comes to taxes. Unemployment insurance taxes and property taxes were the worst 2 categories for the state. Its corporate tax ranking was 43, though that could improve next year. The state has enacted a corporate business tax cut, from 9% to 7%, which will take effect Jan. 1.
Corporate Tax Rank: 42
Income Tax Rank: 44
Property Tax Rank: 48
Vermont gets its lowest scores on property taxes and individual income taxes. The state has 5 income tax brackets, which top out at 8.95%. Its highest score comes from its sales tax, which is 6%. The state’s overall ranking has held steady each of the past 3 years.
Corporate Tax Rank: 44
Income Tax Rank: 46
Property Tax Rank: 34
Minnesota ranks highest in terms of unemployment insurance tax rates, but its lowest scores come from income taxes. The state has 4 tax brackets and a top rate of 9.85%. That’s only slightly higher than its corporate tax rate, which is 9.8%. The state was also fourth-worst on last year’s list.
Corporate Tax Rank: 34
Income Tax Rank: 50
Property Tax Rank: 14
California may be known for technical innovation, but the Tax Foundation finds the state’s tax policy to be anything but innovative. California comes in dead last for its income tax rate, which has a whopping 10 brackets and a top rate of 13.3%. Its best ranking came in the property tax and unemployment insurance tax categories, where it ranked 14th best.
Corporate Tax Rank: 20
Income Tax Rank: 49
Property Tax Rank: 46
New York is a perennial bottom-dweller on the list, though they had some improvement this year. The state’s corporate tax ranking jumped 4 spots thanks to a multi-year plan that will lower its rate from 7.1% to 6.5% and eliminate the capital stock and alternative minimum taxes. The state’s corporate tax ranking is expected to improve even more significantly once those changes are fully phased in. However, that won’t help the state’s income tax system, which ranks 49th. It has 8 brackets and tops out at 8.82%.
Corporate Tax Rank: 41
Income Tax Rank: 48
Property Tax Rank: 50
New Jersey and New York routinely battle for the bottom spot on the list, and this year the Garden State won the battle. New Jersey’s lowest marks come from property taxes. The average property tax bill in the state was $7,988 in 2013 according to the Star-Ledger newspaper. The state is also one of only 2 states in the nation that levy both an inheritance tax and an estate tax.
The Tax Foundation’s full list can be found here.