The Garden State may be able to boast about the Boss and its great beaches but the Garden State has the least competitive tax code in the nation. That’s according to the 2017 State Business Tax Climate Index released by the nonpartisan Tax Foundation.
The index is based on an analysis of each state’s tax code using over 100 tax variables in five different tax categories (corporate, individual income, sales, property, and unemployment insurance). As you might imagine, states are penalized for overly complex, burdensome, and economically harmful tax codes and rewarded for transparent and neutral tax codes that, according to the Tax Foundation, do not distort business decisions.
“Our goal with the State Business Tax Climate Index is to start a conversation between taxpayers and policymakers about how their states fare against the rest of the country,” said Tax Foundation Policy Analyst Jared Walczak. “While there are many ways to show how much a state collects in taxes, the Index is designed to show how well states structure their tax systems, and to provide a roadmap for improvement.” This year, taxpayers definitely have something to talk about.
This year’s most competitive states are:
1. Wyoming
2. South Dakota
3. Alaska
4. Florida
5. Nevada
6. Montana
7. New Hampshire
8. Indiana
9. Utah
10. Oregon
One thing most of those states have in common? The absence of a major tax, such as corporate income tax, individual income tax, or sales tax. For example, Wyoming, Nevada, and South Dakota do not impose a corporate or individual income tax (though Nevada imposes a gross receipts tax). Alaska and Florida skip over the individual income tax and Alaska joins New Hampshire, Montana, and Oregon with no statewide sales tax.
This year’s least competitive states are:
41. Louisiana
42. Maryland
43. Connecticut
44. Rhode Island
45. Ohio
46. Minnesota
47. Vermont and D.C.
48. California
49. New York
50. New Jersey
Most of these states have, according to the Tax Foundation, complex tax codes with comparatively high rates. New Jersey, which just ended a long-term tax agreement with neighboring Pennsylvania, has a multi-tiered individual tax rate. It imposes both an inheritance tax and an estate tax (the latter is based on the federal estate tax rate from the year 2000) and homeowners pay some of the highest property tax rates in the country.
The State Business Tax Climate Index is based not only on total taxes paid but other factors including the kind of tax and the complexity of the tax. Tax Foundation notes that “[b]usiness taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy.” And since taxes lower profits, a state with a lower tax burden will be more attractive to business.
