2015 State Business Tax Climate Index Released Today!

This morning we released our 2015 State Business Tax Climate Index, which enables business leaders, government policymakers, and taxpayers to gauge how their states' tax systems compare.

While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how well states structure their tax systems, and provides a road-map to improving these structures. The Index looks at over 100 variables in the individual income tax, corporate income tax, sales tax, unemployment insurance tax, and property tax to reduce these many complex considerations to an easy-to-use ranking.

The 10 best states in this year's 2014 Index are Wyoming, South Dakota, Nevada, Alaska, Florida, Montana, New Hampshire, Indiana, Utah, and Texas. Many of these states score particularly well because they go without one of the major taxes, but this does not mean that a state cannot rank in the top ten while still levying all the major taxes. Indiana and Utah, for example, have all the major tax types, but levy them with low rates on broad bases.

The 10 lowest ranked, or worst, states in the 2014 Index are New Jersey, New York, California, Minnesota, Vermont, Rhode Island, Ohio, Wisconsin, Connecticut, and Iowa. The states in the bottom 10 suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst structured individual income taxes in the country.

This edition is an exciting one for the Index, because North Carolina has improved dramatically from 44th place last year to 16th place, the single largest rank jump in the history of the Index. The state improved its score in the corporate, individual, and sales tax components of the Index, and as the reform package continues to phase in, the state is projected to continue climbing the rankings. See page three for details.

Nebraska improved five ranks overall, from 34th place to 29th, due to improvements in its corporate and individual income tax systems, including reform of corporate net operating loss carryforwards, a repeal of the individual alternative minimum tax, and indexation of the brackets of the individual income tax code. The legislature there is considering more impactful tax reform next year as well. See page four for details.

Maine is the only state to enact a rate increase in one of its major taxes since last year, as the sales tax rate went from 5.0 to 5.5 percent. This, combined with North Carolina and Nebraska leapfrogging up in the rankings, resulted in Maine falling five rankings in this year’s edition.

We also saw notable changes in North Dakota, New York, and Wisconsin, which are listed on pages four and five.

The report even has a list of forthcoming changes you can expect in future editions. Beneficial reforms that are phasing in on other states include the District of Columbia and Indiana, which are phasing in corporate and individual income tax rate reductions; and Arizona, New Mexico, New York, and Rhode Island, which are phasing in corporate rate reductions.

Illinois, Kansas, Missouri, and Pennsylvania will be important to watch too, as those states have all seen high profile budget battles in the last year.

We hope that this information helps you gauge how your tax system compares and provides a roadmap for improving the business tax climate. Each year, the Index report is downloaded over half a million times and is referenced in hundreds of major media articles and in several State of the State addresses. The rankings are used in other organization's rankings as the tax component, and recent academic evidence found correlation between Index component ranking and state wage and economic growth.

The 2015 Index represents the tax climate of each state as of July 1, 2014, the first day of the standard 2015 state fiscal year. Read the 75-page report by Scott Drenkard and Joseph Henchman and the results at https://taxfoundation.org/index

Overall Rank

Corporate Tax Rank

Individual Income Tax Rank

Sales Tax Rank

Unemployment Insurance Tax Rank

Property Tax Rank

Alabama

28

27

23

41

25

10

Alaska

4

30

1

5

24

32

Arizona

23

24

19

49

4

6

Arkansas

39

40

28

44

39

19

California

48

34

50

42

14

14

Colorado

20

12

16

43

35

22

Connecticut

42

32

34

31

20

49

Delaware

14

50

33

1

2

13

Florida

5

14

1

12

3

16

Georgia

36

8

42

17

36

30

Hawaii

30

9

37

15

28

12

Idaho

19

21

24

22

46

3

Illinois

31

47

11

34

38

44

Indiana

8

22

10

10

7

5

Iowa

41

49

32

23

33

38

Kansas

22

38

18

30

9

28

Kentucky

26

29

30

11

45

17

Louisiana

35

23

27

50

6

24

Maine

33

45

22

9

42

40

Maryland

40

16

45

8

21

41

Massachusetts

24

37

13

21

48

45

Michigan

13

10

14

7

47

27

Minnesota

47

44

46

37

29

34

Mississippi

18

11

21

28

8

33

Missouri

17

4

29

29

12

7

Montana

6

18

20

3

18

8

Nebraska

29

31

25

27

13

39

Nevada

3

1

1

39

43

9

New Hampshire

7

48

9

2

44

43

New Jersey

50

41

48

48

32

50

New Mexico

38

35

35

45

10

1

New York

49

20

49

40

31

46

North Carolina

16

25

15

33

11

29

North Dakota

25

19

36

20

16

2

Ohio

44

26

47

32

5

20

Oklahoma

32

7

40

38

1

11

Oregon

12

36

31

4

30

15

Pennsylvania

34

46

17

24

50

42

Rhode Island

45

43

38

26

49

47

South Carolina

37

13

41

18

40

21

South Dakota

2

1

1

35

41

18

Tennessee

15

15

8

47

26

37

Texas

10

39

6

36

15

36

Utah

9

5

12

19

22

4

Vermont

46

42

44

16

17

48

Virginia

27

6

39

6

37

26

Washington

11

28

6

46

19

23

West Virginia

21

17

26

25

23

25

Wisconsin

43

33

43

14

27

31

Wyoming

1

1

1

13

34

35

District of Columbia

45

38

35

42

27

44

Source: Tax Foundation.


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