States’ Tax Systems Ranked

October 28, 2010 Taxation in USA

Unsettled WindA new study has been published, ranking the tax environments for business across all US states. It was shown that New York state currently stands as the worst state in the country in regards to taxation, while South Dakota was ranked as the best.

The US Tax Foundation has released its latest annual State Business Tax Climate Index (SBTCI), which ranks the effect of states’ tax systems, based on personal income taxes, corporate income taxes, property taxes, sales taxes and unemployment insurance taxes. The report claimed that today’s economy is characterized by highly portable employees and capital, and states need to consider this reality when evaluating the effect of their own tax policies. A well balanced tax system could result in a large number of businesses opting to transfer their main operations from one state to another, ultimately leading to higher levels of employment, economic activity and tax revenues.

According to the SBTCI, South Dakota, Alaska, Wyoming and Nevada are the friendliest states for businesses, when considering the local tax environment. Wyoming, Nevada and South Dakota do not have any state-level personal or corporate income taxes. Alaska also has no corporate tax and also no state sales tax. Florida and Texas also have no personal income tax, while New Hampshire, Delaware, Oregon and Montana have opted not to levy a sales tax. According to the report, states which are able to raise adequate revenues while being able to dispense with one of the major taxes are naturally going to be in a greatly advantageous position when attracting businesses.

New York, California, New Jersey and Connecticut were ranked as the worst states when the tax system is considered. As the lowest ranked state, New York was reported to have the third worst personal income tax rate, the ninth highest sales tax levy, and the most significant property tax in the US.

The report concluded that in order to remedy inefficient tax systems, state-level tax authorities need to consider broadening their tax revenue base, while lowering all rates applicable to businesses. Furthermore, tax legislation should be simplified to ensure a friendly tax environment with no compliance problems. A well-balanced tax system should attract greater businesses, ultimately offsetting any loses in revenues suffered from lowered tax rates.

Photo by Brave Heart