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.

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With the US tax filing season now well under way, on January 17th the Internal Revenue Service (IRS) relaunched its e-File system, allowing taxpayers to submit their tax returns online using free tax preparation software and tools.

The e-File consist of the Free File, which provides taxpayers with free tax preparation software, and Free File Fillable Forms which allow taxpayers to submit their returns using the IRD’s automated electronic tools.

Free File is available to taxpayers with adjusted gross incomes of USD 57 000, offering taxpayers a free version of one of 20 different commercial tax preparation software packages. The applications will require users to answer a number of questions regarding their incomes and expenses in order to determine their exact tax obligations, and will also suggest any currently active tax breaks which the taxpayer is eligible for.

Taxpayers whose incomes exceed the USD 57 000 threshold will be eligible to use the Free File Fillable Forms, which complete some calculations for the taxpayer, but do not offer any suggestions for possible tax breaks.

All the tools and the preparation software will automatically submit a tax return directly to the IRS, which will be processed within 48 hours.

In the 2011 US tax filing season nearly 77 percent of all individuals’ tax returns were filed electronically via the IRS e-File. Since the program was first instated a decade ago it has processed over 1 billion individual tax returns.

In a further push by the IRS to encourage electronic filing, new rules have also been implemented this filing season which mandate that any tax preparer who completes more than 10 individuals’ tax returns must submit the tax returns electronically.

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While giving a speech at the Insourcing American Jobs forum in Washington D.C. on January 12th, the President Barack Obama announced that by the end of February he will propose several new tax measures which, according to him, will reduce the number of companies outsourcing manufacturing work overseas, and will improve the country’s attractiveness as a destination for manufacturing and production.

The President said that, if passed by Senate, the upcoming proposal will give tax breaks to companies which move their operations from overseas back to the USA and which hire local employees. It is expected that the measures will lower the net cost of manufacturing, boost employment and increase growth of the US economy. As an additional measure, current tax benefits available to companies which outsource their production internationally will be removed.

During his speech, Barack Obama did not reveal details of the tax mechanisms that will be employed. However, analysts have suggested that the potential measures could include profit repatriation schemes, beneficial depreciation rules, lowered tax rates on profits derived from high-tech products developed in the USA, tax breaks for companies holding patents in the USA, and new tax incentives for companies performing research and development nationally.

While describing the international economic climate, the President explained that the world was at an “inflection point” and with the rising costs of labor in China and India, the US has a good opportunity to draw in multinational companies to encourage enterprises to establish local manufacturing bases.

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On January 9th the US Internal Revenue Service (IRS) announced that it has initiated another Offshore Voluntary Disclosure (OVD) program for taxpayers to declare their hidden offshore assets in exchange for lowered penalties.

The new program started on the day of the announcement, and will continue indefinitely. Taxpayers making use of the OVD will be required to reveal detailed information regarding their previously undisclosed assets and capitals hidden in offshore bank accounts.

In exchange for revealing the information, taxpayers will avoid the possibility of criminal prosecution, and will face a penalty rate of 27.5 percent of the highest amount held in the bank account during the last 8 years. Additionally, participants will be required to pay all back taxes owing and any applicable interest charges. Under current US tax regulations, the penalty rate levied by the IRS may be as high as 150 percent.

Individuals whose undisclosed assets and capitals did not exceed a maximum value USD 75 000 in the last 8 years can be qualified for a reduced rate of 12.5 percent.

According to the Commissioner of the IRS Doug Shulman, the last two OVDs have already netted over USDD 4.4 billion in recovered tax revenues and penalty fees, and the collections are expected to increase as investigations continue into taxpayers who came forward in the 2011 program. The last two disclosure programs saw over 33,000 US taxpayers come forward with details on their offshore bank accounts.

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On December 8th the Nelson A. Rockefeller Institute of Government released its quarterly report on tax revenues across the states of the USA, which showed that in the 3rd quarter of 2011 overall tax revenue levels rose by 7.3 percent, when compared to the same period in 2010. The change was comprised of a 9.2 percent rise in revenues from personal income taxes, a 5.2 percent increase in corporate income taxes, and 3.9 percent growth in sales tax revenues.

The authors of the report noted that the latest period of tax revenue growth is the seventh consecutive quarter to show an overall increase. However, the latest result was seen as a slowdown from the previous quarter when total growth was 10.8 percent, and the first quarter of 2011 when growth was 9.5 percent.

The largest increase in tax revenues was recorded in North Dakota, where collections were 157 percent above the same period last year. Alaska also saw a significant tax revenue boost, reporting growth of over 124 percent. The high tax collections in both states were attributed to rising international demand for oil and minerals, which are extracted in both states.

From the 48 states from which data was used, only two reported having an overall drop in tax revenues levels, with Delaware and Iowa seeing declines of 13.8 percent and 3.5 percent respectively. Missouri was the only state was recorded as having no change in its overall tax revenues.

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