Special Report

Most and Least Tax-Friendly States for Business

The most tax-friendly states.

10. Texas
> State sales tax rate: 6.25% (12th highest)
> Property taxes collected per capita: $1,555 (15th highest)
> Unemployment rate: 6.3% (17th highest)
> Top income tax rate: N/A

Texas is the 10th most tax-friendly state for businesses. The Tax Foundation gave Texas a particularly strong score for its individual income tax policy, as Texas is one of just seven states without an individual income tax. While Texas does not tax income for individuals or businesses, it does tax have a gross receipts tax on business transactions. As a result, Texas was rated worse than a majority of states for its corporate taxing policies. Texas was also penalized for taxing intangible properties such as stocks, bonds, and even trademarks in one form or another.

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9. Utah
> State sales tax rate: 5.95% (25th lowest)
> Property taxes collected per capita: $912 (13th lowest)
> Unemployment rate: 4.4% (tied-4th lowest)
> Top income tax rate: 5.00%

While most tax-friendly states do not levy at least one major tax, Utah is one of only two of the most tax-friendly states that levies all major tax types. However, it does so at very low rates. Utah received high scores for both its corporate and property tax policies. The state collected just $912 in property taxes per resident in the most recent tax year, or 2.7% of personal income, both among the lower figures nationwide. And like all but one of the most tax-friendly states, Utah has no capital stock tax. Also like a number of the most tax-friendly states, Utah’s economy seems to be doing quite well. Just 4.4% of the state’s workforce was unemployed last year, versus a national unemployment rate of 7.4%, and lower than all but three other states.

8. Indiana
> State sales tax rate: 7.00% (tied-2nd highest)
> Property taxes collected per capita: $971 (15th lowest)
> Unemployment rate: 7.5% (17th highest)
> Top income tax rate: 3.40%

Of the five tax categories The Tax Foundation reviewed, Indiana’s lowest score was for its corporate tax system, but was still better than most states. As a result of recent legislation, however, the state’s corporate income tax rate is set to be reduced from 7.0% to 4.9% by 2021, which is expected to improve the state’s score considerably. Indiana had among the highest state sales tax rates, at 7%, but its excise taxes were lower than in most states. For example, beer was taxed at just 12 cents per gallon, lower than in all but a handful of states. While Indiana’s income tax policies scored relatively well, recent reforms will reduce the income tax rate from 3.4% to 3.3% as early as next year, which would improve its score even further.

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7. New Hampshire
> State sales tax rate: None
> Property taxes collected per capita: $2,518 (3rd highest)
> Unemployment rate: 5.3% (10th lowest)
> Top income tax rate: 5% (dividends & interest income)

With no general sales tax, New Hampshire scored better than all but one other state for its sales tax policy. The state ranked second in this category only because its excise taxes are relatively high. New Hampshire also levies no individual income tax on wages and salaries, although dividends and interest income are taxed. While everyday purchases and earnings are largely tax-free, New Hampshire received an exceptionally poor score for its corporate tax system. Unlike most states, New Hampshire caps the amount of tax carryforwards companies can deduct in the future if they run a net operating loss. Also, state property collections are relatively high. New Hampshire collected more than $2,500 in property taxes per resident, the third highest amount nationwide. This was also nearly 5.5% of a typical personal income in the state, higher than in all but one other state.

6. Montana
> State sales tax rate: None
> Property taxes collected per capita: $1,347 (24th highest)
> Unemployment rate: 5.6% (14th lowest)
> Top income tax rate: 6.9%

Montana is one of only five states with no state sales tax, which explains its third place rank for sales tax policy. However, the state’s excise taxes hurt its sales tax rating slightly. Spirits, for example, were taxed at $9.34 per gallon, higher than in all but two other states. Montana’s property and individual income tax systems were also rated among the best in the nation. Montana’s property tax base does not include intangible property, inventory, or real estate transfers, all of which can lower a state’s property tax policy ranking. Like a handful of states, Montana’s tax code does not feature a “marriage penalty.” This occurs when, according to The Tax Foundation, “when a state’s standard deduction and tax brackets for married taxpayers filing jointly are not double those for single filers.”