Wyoming First, Pennsylvania Worst In Business Taxes
An executive looking to locate his company might do well to consider Wyoming. That state is the most business-friendly in the country, at least when it comes to taxes, according to a new study.
When all taxes that businesses pay are factored in, Wyoming's rate is less than half the national average, according to a Tax Foundation study released Wednesday. The state is one of three — Nevada and South Dakota are the others — without a corporate income tax.
Pennsylvania, meanwhile, wins the dubious distinction of imposing the heaviest tax burden on its businesses, with an overall effective rate that's 45% above the national average.
The study produced a separate ranking for state taxes on new firms. The rating factored in incentives such as tax credits for new jobs, investments and R&D, special property tax breaks. Nebraska came out on top by this measure. Hawaii finished last.
A separate IBD analysis compared job growth rates in states that performed best on both these tax measures with those that performed worst, and found that states with the lowest tax rates for new and existing businesses created 52% more jobs during the economic recovery than those states with the highest tax burdens.
These combined low tax states — Wyoming, Nebraska, Georgia, Ohio and Utah — saw jobs climb an average 1.14% since the recession ended in June 2009.
The five states with the highest business tax rates on new and existing firms — Pennsylvania, Massachusetts, Hawaii, Kansas and Rhode Island — had payrolls that grew an average of just 0.75%.
"This is exactly what you'd expect," said Richard Vedder, an economist at the University of Illinois. "Businesses respond to the price of resources, and costs are lower in states with low taxes."
The "Location Matters" study looked at a range of business taxes: corporate income, sales, property, unemployment, gross receipts. The Tax Foundation collaborated with the accounting firm KPMG on the report.
Ohio Ranks Highly
Among the most populous states, California ranked 34th, Texas 12th, New York 42nd, Florida 19th and Illinois 45th.
Ohio, which came in fifth, imposes a low-rate gross receipt tax instead of a formal corporate income tax.
"This report helps answer an important question for business owners: What will my company pay in taxes if I move into a state?" said Scott Hodge, the Tax Foundation's president. "Up until now, there had been no comprehensive national tax survey that could answer that question."
By looking at a more comprehensive tax picture, the Tax Foundation says it has created a resource for state politicians trying to improve the competitiveness of their state tax laws, and for business executives looking for places to locate operations.
The study produced startling findings. Among them:
A new distribution center in Kansas faces an effective tax rate of 65.4% — the highest for any industry category in any state.
Louisiana offers so many incentives for new R&D companies that they face an effective tax rate of -10.5%.
Louisiana doesn't extend this generosity to new distribution centers, which face a sky-high 50% tax rate.
Pennsylvania likewise makes life easy for manufacturers, offering them tax rates as low as 6.1%, among the lowest in the country.
Pennsylvania is most unkind to other types of business, with tax rates that are the highest, or near the top, for every other industry examined by the study.
Nebraska is the most tax-friendly state for new corporate headquarters, which face an effective rate of just 1.4%.
A mature corporate HQ in Nebraska pays an overall rate of 16.3%.
Hodge said he was surprised at the wide variability in tax rates within a state.
"When you look at a state's corporate tax rate, you'd think everybody must pay that rate," he said. "But the reality is often starkly different, because of variables in their tax systems."
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