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October 14, 2004
Digging Deeper into the Rankings
I was curious about some of the SBEC state rankings I wrote about yesterday. Why were Tennessee, New Hampshire and Texas not in the top 10? They are all relatively low tax states with no personal income tax, which seems to drive many of these rankings.
Well, the devil may be, in part, in the details. It seems that several states still do not recognize the benefits of S-corps for supporting the formation and growth of small businesses. Rather than flow income from these businesses through to the owners to be taxed at the personal rates, which was the intent of the federal legislation, some states tax the income that flows through S-corps. The advantage of no double taxation for S-corps does not seem to apply in these states. And three states that brag about no state income taxes have some fine print that says otherwise.
"Texas has no personal income tax. But it does impose a 4.5% income tax on corporations, which applies to S Corporations. New Hampshire also inflicts no general personal income tax. However, its burdensome corporate income tax of 8.5% encompasses S Corporations. The state of Tennessee sees the wisdom in not taxing general personal income as well, but also falters by having its 6.5% corporate income tax apply to S Corporations."
Posted October 14, 2004 07:18 AM
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Comments
Texas does have a franchise tax for corporations.
As I understand it though, this is very easy to get around and not pay. It's a big political issue over whether and how to close the loophole, because hardly no businesses pay the franchise tax, apparently.
Posted by: Dingo at October 15, 2004 11:17 AM
at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
