2015 State Business Tax Climate Index Released Today! October 28, 2014 Scott Drenkard Scott Drenkard, 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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