WASHINGTON D.C. – Wyoming and South Dakota have the best tax climates for business across all of the states in the USA.

The Tax Foundation has released its latest study of business taxes across the USA, highlighting the difference in tax environments faced by enterprises across the country in the 2012 edition of the State Business Tax Climate Index released on January 25th .

The Index ranks each state based on the taxes applied directly on businesses and working individuals, and on the number of tax credits that tax authorities make available to locally registered companies.

The authors of the report explained that states which choose not to levy some of the most common taxes will be seen as being more competitive and having a friendlier business environment. The Index placed a negative weighting on excessive tax breaks, as they were deemed to introduce bias into the tax system.

Wyoming, South Dakota and Nevada were the top three ranked states, with each region not levying any additional corporate or personal income taxes on top of federal income taxes. Alaska and Florida, which were ranked 4th and 5th, also levied no individual income taxes, and had relatively minor corporate income taxes.

The lowest ranked state in the Index was New Jersey, and the states of New York and California were ranked just marginally better. The Tax Foundation’s report explained that the lowest states had high tax rates and unnecessarily complicated tax rules for businesses. In order to improve their standing, the states will need to simplify their tax systems and rebalance all tax rates to remove distortions, making them neutral.

Commenting on the result of the report, Mark Robyn, one of the authors, explained that it is vital for state policymakers and politicians to be aware of the direct tax competition the state faces from neighboring states, and to ensure that the local tax systems are optimized and do not put unnecessary strain on entrepreneurs.

Photo by 401K