Wyo ranks third in business tax friendly climate
By Wyoming Business Report staff

November 1, 2010 -- WASHINGTON, D.C. — The Tax Foundation has released the newest edition of the "State Business Tax Climate Index," which ranks from 1 (best) to 50 (worst) the tax systems of the 50 states.

Wyoming is third this year, falling from second in 2009. The state is ranked first overall in both the corporate tax and individual income tax index rankings. For property tax, Wyoming was 46th, the Tax Foundation data show.

The 10 states that had the best tax climates on the first day of the 2011 fiscal year (July 1, 2010) were South Dakota, Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware, Utah and Indiana.

"The top eight tax systems all raise sufficient revenue without imposing one or two of the three major state taxes-sales taxes, personal income taxes and corporate income taxes," said Scott Hodge, president of the Tax Foundation.

The 10 states with the least hospitable business tax climates are, from 50th to 41st best: New York, California, New Jersey, Connecticut, Ohio, Iowa, Maryland, Minnesota, Rhode Island and North Carolina.

The worst state tax codes tend to have: complex, multi-rate corporate and individual income taxes with above-average tax rates; above-average sales tax rates that don't exempt business-to-business purchases; complex, high-rate unemployment tax systems; and high property tax collections as a percentage of personal income.

"States do not enact tax changes in a vacuum," Hodge said. "Every tax change will affect a state's competitive position relative to its neighbors."

The goal of the index is to focus lawmakers' attention on the importance of good tax fundamentals: enacting low tax rates and granting as few deductions, exemptions and credits as possible.

This "broad base, low rate" approach is the antithesis of most efforts by state economic development departments that specialize in designing "packages" of short-term tax abatements, exemptions, and other giveaways for prospective employers who have announced that they would consider relocating.

Those packages routinely include such large state and local exemptions that resident businesses must pay higher taxes to make up for the lost revenue.

"The temptation is for state lawmakers to lure high-profile companies with packages of tax bonuses," said Kail Padgitt, Ph.D., the author of the 2011 edition of the index, "but that strategy often backfires if the company does not prosper."

The methodology of the State Business Tax Climate Index is centered on the idea of economic neutrality. If a state's tax system maintains a "level playing field" for businesses, the index considers it neutral and ranks it highly. However, each state's final score depends on a comparison with the other 49 states.

The overall index is composed of five indexes of a state's tax system: the state's major business tax, whether a corporate income tax or a gross receipts tax; the individual income tax; the general and selective sales taxes; the unemployment insurance tax; and asset-based taxes including property taxes.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

The index is available online at http://www.taxfoundation.org.