2015 Best and Worst Business Tax Conditions by State
by King White, on Feb 17, 2015 3:29:01 PM
As companies seek to expand or relocate their operations in the United States, tax conditions can play a major role in the site selection process for employee and capital intensive projects such as headquarters, manufacturing plants, distribution centers, data centers and call centers.The tax burden a company faces in a particular state will impact the ability of a community to be competitive despite any economic incentives offered by economic development organizations that may offset the tax burdens.
Site Selection Group has analyzed the latest tax condition rankings developed by the Tax Foundation to identify the best and worst states to operate. This research evaluated multiple tax conditions including corporate tax, individual income tax, sales tax, unemployment insurance tax and property tax rates for all 50 states.
Tax conditions evaluated early
Tax conditions are typically evaluated early in the site selection process when site selectors are filtering communities based on critical location factors. This filtering occurs well before any contact has been made with any state. As a result, many states are cut from the candidate pool well before any economic incentives are proposed to the company. A classic example is California, which typically gets eliminated in the first round due to its tax problems.
Companies prioritize taxes
Different types of projects will be impacted in different ways by the tax burden of a state. For example, a manufacturing plant or data center requiring a significant amount of capital investment may avoid states with excessive property and sales taxes, while an employee intensive operation such as a headquarters or a call center might avoid states with high unemployment insurance tax rates and individual income tax rates. Similarly, ecommerce companies with distribution centers may avoid states with high sales taxes. As a result, it is important to understand what taxes impact which business to determine which states are best for specific project types.
Top 10 states with the best tax conditions
A major factor bringing states to the top of the list is lack of one of the major tax programs. Property taxes and unemployment insurance taxes are levied in every state while corporate tax, the individual income tax, or the sales tax may not exist in certain states. Wyoming, Nevada and South Dakota have no corporate or individual income tax; Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax. Based on the overall ranking of tax conditions, the following states have been identified as some of the best states:
- South Dakota
- New Hampshire
States with the worst tax conditions
The states with the worst rankings suffered from complex, non-neutral taxes with comparatively high rates. Based on the overall ranking of tax conditions, the following states have been identified as some of the worst states:
- Rhode Island
- New York
- New Jersey
How the rest of the states compared
The following interactive diagram provides a summary of how the rest of the states compared in the study. (Please move your mouse over each state to see their ranking.)
With many states overhauling their tax structures, it is important to closely monitor the tax climate of each state as there are more changes coming. States like North Carolina jumped from 44th place last year to 16th place this year due to significant tax reform, and it is expected to climb even higher in the rankings as additional tax changes are phased in. As a result, these on-going changes add to the complexity that companies face as they try to identify the optimal location to expand their business.
Source: Tax Foundation