Earlier today the nonpartisan Tax Foundation released its annual State Business Tax Climate Index, which ranks states based on the climate their tax policies generate for business and economic growth. Using an analysis of 114 variables in five different tax categories (corporate, individual income, sales, property and unemployment insurance), the Tax Foundation is able to give each state a score and rank them accordingly. The index shows which states are getting ahead and which are falling behind.
The five states with the best tax climates for 2018, ranked first through fifth, are Wyoming, South Dakota, Alaska, Florida, and Nevada, all of which remained in the same position from 2017. The commonality between each of the top states, according to the Tax Foundation, is the absence of a major tax which can distort business decisions. They note that while property and unemployment taxes are applied in each state, there are multiple states that lack one or more of the taxes, such as the corporate tax, individual income tax, or the sales tax.
The five states with the worst tax climates for 2018, ranked 46th through 50th, are Minnesota, Vermont, California, New York and New Jersey, all of which remained in the same position from 2017. These states all have the same damaging defects: “complex, non-neutral taxes, paired with high overall tax rates.” While these states continue to have some of the highest GDP’s in the United States, it is clear that they need to address serious challenges that could impact their future success.
The Tax Foundation’s State Business Tax Climate Index is a great reminder for lawmakers in every state across the country that tax policy remains a fundamental factor in fostering economic prosperity and opportunity. For states looking to improve their ranking in next year’s report, they should simplify their tax codes by reducing the number of income brackets and eliminating time-consuming (and complex) deductions and exemptions. By following the guidance laid out in this report, states can enjoy the economic benefits that are associated with a better business tax climate.