The Tax Foundation has published its 2006 State Business Tax Climate Index (SBTCI). It is an index that assesses overall tax policy as it relates to business.
Taxes affect business decisions, job creation and retention, plant location, competitiveness, and the long-term health of a state's economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), workers (through lower wages or fewer jobs), or shareholders (through lower dividends or share value). Thus a state with lower tax costs will be more attractive to business investment.
Often public officials cut deals to entice a specific company to relocate in their state, such as the recent Nissan deal here in Tennessee, and then tout their efforts for job creation. But, real long-term job creation and economic growth comes from a consistent and fair tax structure for all businesses.
Good state tax systems levy low, flat rates on the broadest bases possible, and they treat all taxpayers the same. Variation in the tax treatment of different industries favors one economic activity or decision over another. The more riddled a tax system is with these politically motivated preferences the less likely it is that business decisions will be made in response to market forces. The SBTCI rewards those states that apply these principles in five important areas of taxation: individual income taxes, major business taxes, sales taxes, unemployment insurance taxes, and taxes on wealth or assets such as property.
Here are the top ten states:
1. Wyoming
2. South Dakota
3. Alaska
4. Florida
5. Nevada
6. New Hampshire
7. Texas
8. Delaware
9. Montana
10. Oregon
And here are the bottom ten:
41. Arkansas
42. Iowa
43. Nebraska
44. Kentucky
45. Maine
46. Vermont
47. Ohio
48. Rhode Island
49. New Jersey
50. New York
The complete study can be found here. Table 2 on page 9 of this report has a good summary of how each states ranks for each of the five key tax categories. For example, while Tennessee ranks high in corporate and individual income taxes (we have no state personal income tax), we rank low on sales tax, unemployment tax and wealth tax.
