The Most Tax-Friendly States for Business

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The Most Tax-Friendly States

10. Utah
> Taxes collected per capita: $1,958 (13th lowest)
> Unemployment: 5.4% (tied-9th lowest)
> Corporate taxes collected per capita: $89 (19th lowest)
> Sales tax rate: 5.95% (24th lowest)

Unlike most of the states with high marks for their business climate, Utah levies taxes in all five areas measured by the Tax Foundation. However, Drenkard pointed out that Utah is received good marks for businesses because its taxes were not especially high in any one particular area. The state ranked third best in terms of property taxes and fifth best in terms of corporate tax policy. The low taxes, along with a better-than-average educated workforce, has encouraged companies to continue to build a presence in the state. For instance, Goldman Sachs has been building up its operation in Salt Lake City within the past year, and it is becoming one of the company’s largest operations worldwide. Procter & Gamble has also built a presence in the state due to low taxes.

9. Texas
> Taxes collected per capita: $1,696 (6th lowest)
> Unemployment: 6.3% (tied-16th lowest)
> Corporate taxes collected per capita: 0 (the lowest)
> Sales tax rate: 6.25% (13th highest)

Texas is one of just seven states that have no individual income tax, all of which are among the most-friendly towards business. Outside of the individual income tax, however, Texas was rated poorly for many of its tax policies, including corporate taxes where it was rated 13th-worst. One reason for this low rank is that Texas taxes business es with a gross receipts tax — in which company sales, rather than profits, are taxed. As of January, Texas was one of just five states to broadly tax all businesses using such a measure.

Also Read: States with the Most Government Employees

8. Montana
> Taxes collected per capita: $2,316 (23rd lowest)
> Unemployment: 5.7% (13th lowest)
> Corporate taxes collected per capita: $125 (21st highest)
> Sales tax rate: none (the lowest)

Montana is one of just five states that don’t have a sales tax at either the state or the local level. In addition, the state has some of the lowest property taxes in the entire country. The state’s effective property tax rate — 0.72% of median home value in 2011 — was lower than the 1.12% average rate across the country. Furthermore, while far from receiving the best ranks, the state’s individual income and corporate taxes are more favorable than half of all states. Unlike some states, Montana has a flat corporate income tax, with all businesses paying 6.75% of all profits. Despite a pro-business tax climate, there are no Fortune 500 companies based in Montana.

7. New Hampshire
> Taxes collected per capita: $1,761 (8th lowest)
> Unemployment: 5.8% (14th lowest)
> Corporate taxes collected per capita: $443 (2nd highest)
> Sales tax rate: none (the lowest)

New Hampshire is one of just two states, along with Tennessee, that restrict personal income taxes to just interest and dividends. Additionally, New Hampshire is one of just five states that have no state-level sales tax. Partly because of this, New Hampshire ranked ninth for individual income policy and first for sales tax policy on the Tax Foundation’s business climate index. However, the state had the nation’s highest property tax rate as a percent of income as of July 2012, at 5.68% of residents’ income, and it earned one of the worst scores in the U.S. for its property tax policy.

6. Washington
> Taxes collected per capita: $2,566 (19th highest)
> Unemployment: 7.5% (20th highest)
> Corporate taxes collected per capita: 0 (the lowest)
> Sales tax rate: 6.5% (10th highest)

Washington ranked high on the list largely because it doesn’t have any individual income tax. The state’s other tax policies generally received mediocre ratings, with its sales tax policy rated the third worst in the nation by the Tax Foundation. As of January, the state’s sales tax rate was 6.5%, 10th highest in the nation. And when including the average local sales tax paid, the state has the fourth-highest sales tax, at 8.86%. Other policies, such as high excise taxes on different products, also lowered its rank. The state had the fifth-highest excise tax on cigarettes in January at $3.03 a pack. Because of these policies, Washington was named by the Institute on Taxation and Economic Policy as having the most regressive state tax structure in the nation — meaning the poor pay far more of their income than the wealthy.