Certain states undoubtedly offer business owners more tax advantages and fewer liabilities than others due to more flexible tax laws and regulations. New research indicates which states may be more favorable to companies seeking to avoid corporate taxes and other major tax types.
The Tax Foundation recently published the findings of its State Business Tax Climate Index, which listed Wyoming, South Dakota, and Nevada as the top three states with a favorable business climate. This is largely because none of these states currently impose a corporate tax liability or individual income tax. This may give companies more financial flexibility and free up consumer income for spending.
However, a number of states - primarily those located in the Northeast region of the country - placed on the bottom of the list as the most unfavorable locations for businesses, namely as a result of high top rates and complex, non-neutral taxes that hinder a state's economic competitiveness. These states include Connecticut, Vermont, New Jersey and New York.
"The evidence shows that states with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth," the Foundation noted. "Furthermore, unlike changes to a state's healthcare, transportation, or education systems which can take decades to implement changes to the tax code can quickly improve a state's business climate."
Scott Drenkard, an economist with the foundation, said that the data may help spark conversations with policymakers about what is working and what is not, with regard to their tax codes.The study is primarily used as a barometer that allows lawmakers and policy analysts to compare their state tax polices with others, and make key decisions that may improve their competitiveness. The data may become especially important as more municipalities face budgetary shortfalls, pension issues, and other financial obstacles that have prompted many to seek municipal bankruptcy protection.