The Best and Worst States for Business
The most tax-friendly states for business, and the most hostile
Where will your company pay the least tax? Whether you are just starting a business, expanding, or thinking of relocating, this is an important consideration.
The Tax Foundation, a nonpartisan tax research group based in Washington, D.C., has released their State Business Tax Climate Index for 2019, a study that ranks the best and worst states for business taxes. The Index helps policymakers and business leaders to assess their state's tax systems against others. The Index also shows the states that have the best-structured tax systems and those that need to improve their systems to attract more business.
These Index ratings take into account individual income taxes, major business taxes, sales taxes, unemployment insurance taxes, and taxes on wealth or assets such as property.
The Most Tax-Friendly States for Business
The states that top the Tax Foundation list as the most tax-friendly are:
1. Wyoming: No corporate or individual income tax
2. Alaska: No individual income tax or state-level sales tax
3. South Dakota: No corporate or individual income tax
4. Florida: No individual income tax
5. Montana: No sales tax
6. New Hampshire: No sales tax
7. Oregon: No sales tax
9. Nevada: No corporate or individual income tax (though Nevada imposes gross receipts taxes)
Most of the top 10 states lack a major tax, although property taxes and unemployment insurance taxes are levied in every state. A state can still rank in the top 10 while levying all the major taxes. For example, Indiana and Utah levy all of the major tax types but the rates are low and the bases are broad.
Worst States for Business
The five least tax-friendly states for business are the following:
48. New York
50. New Jersey
The bottom 10 states have some things in common. They tend to have complex, non-neutral taxes with high rates. New Jersey has some of the highest property tax burdens in the country and the second highest-rate corporate income tax in the country. The state also levies an inheritance tax and has some of the nation’s worst-structured individual income taxes.
In Connecticut, a temporary corporate income tax surcharge was reduced from 20 to 10 percent in 2018, reducing the top marginal rate from 9 to 8.25 percent. The 2018 rate reduction helped the state move up four places on the corporate component of the Index, from 33rd to 29th. However, Connecticut’s overall rank remains unchanged at 47th.
In Arkansas, legislators are working on comprehensive tax reform to overhaul individual and corporate income taxes including state-imposed property and wealth taxes. This marks the culmination of work by the state tax reform commission. If the state adopts a new plan, it is likely to change Arkansas' ranking in subsequent years.