This page explains what the Index can and cannot tell you, and how to find your way around this tool. It is adapted from “Understanding the Index and Tax Competition” in the full report.
Tax Competition Is a Little like WAR
Not conflict, but Wins Above Replacement. The term comes from baseball, where it measures how many more wins a team gets from a particular player than it would from an average replacement. State taxes work much the same way. A well-designed tax code won’t turn the Wyoming Basin into a big city, and a poorly designed one won’t empty Manhattan. But how a state structures its taxes does play a part in its economic successes and failures, often a large one. Every state can gain from a tax system that is simple, neutral, transparent, and friendly to growth.
What the Five Components Tell You
The Index scores states on five components, one for each major part of a state’s tax code: corporate taxes, individual income taxes, sales and excise taxes, property and wealth taxes, and unemployment insurance taxes. The components are not weighted equally. Each weight reflects how much states differ on that component, which gives more weight to the areas where states have more room to compete. The methodology page lists the weights.
On the home page, the tabs above the map switch between the overall rankings and each component.
Why Some States Score Perfectly
It is hard to design a tax badly if you don’t levy it. By going without a major tax altogether, such as the individual income tax, the corporate income tax, or the sales tax, some states score perfectly on a component or part of one. That is why states like Wyoming and South Dakota, which have no income taxes, do so well.
States that skip one or more major taxes tend to lean heavily on the others (which can mean lower ranks on those components), run leaner budgets, draw on natural resources like oil and gas, or, like Florida, have populations for whom other taxes raise a surprising amount of revenue.
The Wyoming Model Isn’t the Only One
Not every state can copy Wyoming, but the Missouri, Utah, and North Carolina models are within reach. All three rank in the top 11 while levying every major tax, at moderate rates and with fairly well-designed structures. Open their profiles to see how.
For taxpayers, the Index is a good starting point for seeing how a state compares with its peers. For lawmakers and anyone who wants to improve a state’s tax code, it is also a diagnostic tool. Its tables let you compare states on a wide range of details: tax rates, but also throwback rules, the treatment of net operating losses, recapture provisions, inflation indexing, split-roll property taxes, convenience rules, expensing, and much more.
That is what the tax data explorer at the bottom of each state profile is for. Search for any variable or value, or narrow the table to one component. Each component page has the same explorer limited to that component, and the Compare page has one for the two states you pick.
Context Matters
If you gave South Dakota New York’s tax code, South Dakota would struggle. People are clearly willing to pay a premium to live in New York: for housing, for everyday purchases, and for taxes. But there are limits, and a tax system that is bearable in Manhattan can weigh much more heavily in Syracuse.
The Index measures how taxes are structured. It does not measure the many other things businesses care about, such as a skilled workforce, quality of life, nearness to markets, or even the weather, and some of those involve trade-offs. Taxes are not everything, but they do matter, and lawmakers control them. Even when a state needs to raise a set amount of money, some ways of raising it are better than others.
Finding Your Way Around
- Home. The map shows every state’s rank. Select a state to open its profile, or hover over it or tab to it to see its ranks. The tables below the map list every state’s ranks and scores.
- State profiles. Each opens with the state’s overall rank and score, then its component scores, its rank history since 2020, where it stands among all the states on every measure, how it compares with its neighbors, and the tax data explorer.
- Component pages. Reached from the tabs or component cards on a state profile. Each leads with the state’s rank on that component, then the full ranking and what the component is built from.
- Compare. Put two states side by side, from their ranks and scores down to the tax rules behind them. You can also start a comparison from any state profile.
- Jump to a state. The bar at the top of every page opens any state’s profile. On a component page, it keeps you on the same component.
- Share. Every page ends with share links and a button that copies the page’s link.
