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States with the Best and Worst Business Tax Conditions

by King White, on Apr 3, 2014 4:57:00 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.  The tax burden a company faces in a particular state will impact the ability of a community to be competitive despite any economic taxes2incentives offed by economic development organizations that may offset the tax burdens. Site Selection Group 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.  

The impact on the site selection process
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 their tax structure and labor laws.   

Prioritizing taxes based on project type
A state’s tax burden will impact different types of projects in different ways. 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 call center might avoid states with high unemployment insurance tax rates and individual income tax rates.  Similarly, e-commerce companies with distribution centers may avoid state 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 state that doesn’t tax in every category can find itself catapulted to the top of the list. Every state levies property taxes and unemployment insurance taxes but corporate taxes, individual income taxes, or sales taxes 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:

 1.    Wyoming
 2.    South Dakota
 3.    Nevada
 4.    Alaska
 5.    Florida
 6.    Washington
 7.    Montana
 8.    New Hampshire
 9.    Utah
 10.  Indiana

The 10 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:

 41.    Maryland
 42.    Connecticut
 43.    Wisconsin
 44.    North Carolina
 45.    Vermont
 46.    Rhode Island
 47.    Minnesota
 48.    California
 49.    New Jersey
 50.    New York

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.)

Conclusions
With many states overhauling tax structures, it is important to closely monitor the tax climate of each state as there are more changes coming. North Carolina, for example, is going through significant changes that should drastically improve its ranking next year. As a result, these on-going changes add to the complexity that companies face trying to identify the optimal location to expand their business.

 

Topics:Call CenterDistribution CentersManufacturingEconomic IncentivesEconomic Development

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