Hawaii ranks in bottom 10 of states with favorable tax climates
by Merrilee Gasser, The Center Square, Oct 27, 2022
(The Center Square) - Hawaii has one of the worst business tax climates in the country, according to a new report.
The state ranked in the bottom ten of the Tax Foundation’s index comparing states based on how well they structure their tax systems.
After ranking in the mid-to-low 30s since 2014, Hawaii fell to 41st last year and to 43rd this year. The index noted property taxes have become less favorable in the state since the last index was released.
“The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates,” the authors wrote.
Hawaii’s corporate tax ranked 19th, and its individual taxes ranked 46th, both unchanged from the last index. Its sales taxes improved slightly, and so did the state’s unemployment insurance taxes. However, property taxes, which include taxes on real and personal property, dropped a point, ranking 32nd this year.
“Property taxes matter to businesses, and the tax rate on commercial property is often higher than the tax on comparable residential property,” said the authors. “Additionally, many localities and states levy taxes on the personal property or equipment owned by a business.”
Property taxes play a significant role in business location decisions, with one study finding a 10% increase in business property decreases the number of new plants opening in a state, the report said.
“States which keep statewide property taxes low better position themselves to attract business investment. Localities competing for business can put themselves at a greater competitive advantage by keeping personal property taxes low,” the authors wrote.
States that ranked the lowest included Maryland, Connecticut, California, New York and New Jersey.
States with the most favorable business tax climates were Wyoming, South Dakota, Alaska, Florida, and Montana.
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2023 State Business Tax Climate Index--Hawaii Ranks 43rd
by Janelle Fritts and Jared Walczak, Tax Foundation, October 25, 2022
LINK: Hawaii State Summary
The Tax Foundation’s State Business Tax Climate Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how well states structure their tax systems and provides a road map for improvement.
The 10 best states in this year’s Index are:
The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. Nevada, South Dakota, and Wyoming have no corporate or individual income tax (though Nevada imposes gross receipts taxes); 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.
This does not mean, however, that a state cannot rank in the top 10 while still levying all the major taxes. Indiana and Utah, for example, levy all the major tax types but do so with low rates on broad bases.
The 10 lowest-ranked, or worst, states in this year’s Index are:
The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the highest-rate corporate income taxes in the county, and has one of the highest-rate individual income taxes. Additionally, the state has a particularly aggressive treatment of international income, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes.
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