A Review of the 2024 State Business Tax Climate Index

A state’s tax climate is a critical component in the site selection process. Site Selection Group utilizes multiple tax research tools to evaluate state tax environments and calculate estimated projected state and local tax liabilities generated by our client’s projects. One valuable tool Site Selection Group leverages is the Tax Foundation’s annual State Business Tax Climate Index, which scores and ranks all states based on each major component of a state’s overall tax burden – corporate, individual income, sales, property and unemployment insurance taxes. While each component is separately analyzed and ranked, the Tax Foundation also provides an overall state ranking.

2024 State Business Tax Climate Index Rankings

The Tax Foundation’s 2024 State Business Tax Climate Index is as follows:

States ranked highly typically lack a prominent tax component. For example, Wyoming and South Dakota do not impose a corporate or individual income tax. Alaska and Florida do not charge personal income taxes, while Alaska, New Hampshire and Montana do not impose sales tax. Other highly ranked states may impose all major tax components, but they likely have much lower rates, like those of North Carolina, Indiana, and Utah. Conversely, states rated at the bottom of the list tend to have higher tax rates and more complex tax bases. New Jersey remains last in the rankings due to having one of the highest, if not the highest, property, corporate income and individual income tax rates in the United States.

States moving up the rankings from last year

The states with the most significant improvements in overall rankings from 2023 to 2024 were:

Mississippi

Mississippi’s ranking improved due to the retroactive enactment in March 2023 of permanent full expensing for qualified investments in machinery and equipment. In addition, the state imposed a flat individual income tax and will phase out its franchise tax. 

Arizona

Arizona improved five spots by imposing a flat rate individual income tax of 2.5%, the lowest rate for all states that assess a flat rate.

Iowa

Like Mississippi and Arizona, Iowa is on the road to adopting a flat tax rate for its corporate and individual income tax rates. Presently, it has consolidated tax brackets and reduced its highest personal tax bracket to a rate of 6% and corporate income tax rate to 8.4%. These enhancements improved its ranking; however, Iowa is still ranked 33rd since these rates are still high comparatively.

Wisconsin

Wisconsin saw an improvement in ranking based on enhanced rankings for property and sales taxes. Moreover, in June, Wisconsin repealed its property tax on tangible personal property effective January 1, 2024. This will make the state much more competitive and help it compete with nearby states that similarly exempt much, if not all, tangible personal property from property taxation in 2025 rankings.

Oklahoma

Tax reform continues in Oklahoma, and significant property tax modifications, in conjunction with maintaining the permanent full expensing for qualified investments, boosted its overall ranking. Oklahoma and Mississippi are the only two states that have adopted this measure, while most states conforming to federal bonus depreciation under the Internal Revenue Code will see a decline in allowable bonus depreciation. The state did not ultimately enact changes to its corporate income tax apportionment methodology, but a single sales factor will likely be considered again.

States moving up the rankings since 2014

Some notable highlights are the following states which have improved their overall ranking since 2014:

Corporate income tax reform improved rankings in North Carolina, Kentucky, and Iowa. Arizona enhanced its individual income tax regime, and Wisconsin ranked higher with property tax amendments and low sales and excise tax rates.

State competitiveness among multiple surveys/rankings

While a state’s taxing environment is critical to the site selection process, it is not always a direct indicator of its competitiveness in winning projects. The chart below reproduces the Tax Foundation rankings as a basis with other accolades layered on:

Since a state’s tax environment is only one component in the site selection process, other surveys consider components such as workforce, infrastructure, education, site consultants’ feedback, business friendliness, cost of doing business, etc. In addition, certain states may be competitive based on logistics or their natural resources. Therefore, none of these sources should be viewed in isolation.

Notably, North Carolina is the only state that happens to be in the top ten State Business Tax Climate Index and the top ten for all other sources listed above.  

Conclusion

While it’s not the only factor, a state’s tax environment is integral to a company’s site decision. There has been a lot of state tax reform in recent years, and we suspect there will be additional reforms next year. Improvements will likely include lower tax rates, apportionment methodology changes to a single sales factor, elimination of throwout/throwback sourcing rules, improved sales tax exemptions, corporate and individual income flat tax bases or elimination of property tax on tangible personal property. In addition to tax structure reforms, economic incentives will likely continue to be refined or adopted to offset otherwise burdensome or noncompetitive tax regimes. It is not unusual for the two to be correlated, and Site Selection Group will continue to monitor tax and incentive programs.

Please get in touch with me at krendziperis@siteselectiongroup.com with any questions or comments.