State Business Tax Climate Index

From Tax Foundation, September 28, 2016

Hawaii:  The expiration of temporary tax increases in Hawaii resulted in the elimination of the top three individual income tax brackets and the lowering of the top marginal rate from 11 to 8.25 percent. Although the income tax still features an unusually numerous nine brackets, these changes improved the state from 37th to 31st on the individual income tax component, and from 30th to 27th overall.

Executive 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 roadmap for improvement.

The 10 best states in this year’s Index are:

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

The absence of a major tax is a common factor among many of the top ten 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. Wyoming, Nevada, and South Dakota 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, Montana, and Oregon have no sales tax.

This does not mean, however, that a state cannot rank in the top ten while still levying all the major taxes. Indiana and Utah, for example, levy all of 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:

• 41. Louisiana
  
• 42. Maryland
  
• 43. Connecticut
  
• 44. Rhode Island
  
• 45. Ohio
  
• 46. Minnesota
  
• 47. Vermont
  
• 48. California
  
• 49. New York
  
• 50. New Jersey

The states in the bottom 10 tend to have a number of shortcomings in common: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance tax and an estate tax, and maintains some of the worst-structured individual income taxes in the country....

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