The U.S. federal tax code is arguably more demoralizing than it should be, in part due to the millions of dollars tax-filing service providers spend on lobbying against simpler procedures used in other developed countries. (Here are counties where families need to budget the most for taxes in every state.)
But at least the federal tax code is uniform across the country. State and local taxes vary widely from one place to the next, which means Americans who move or work across state lines must adapt themselves to changes in state and local tax codes.
One way to measure a state’s tax “friendliness” is to examine the individual and corporate state income taxes, and the average of state and local sales taxes. These are the primary taxes paid by most Americans and the main sources of public revenue to help finance public services and infrastructure, from Medicare and Medicaid to roads and parks maintenance to the salaries of teachers, police, and fire departments.
To determine the most and least tax-friendly states for business, 24/7 Wall St. reviewed data from the Tax Foundation’s 2022 State Business Tax Climate Index. States were ranked based on their State Business Tax Climate Index score, a composite of five factors measuring individual income tax, sales tax, corporate income tax, property tax, and unemployment insurance tax. (Here are the states with the highest and lowest property taxes.)
According to the most recent data from the Tax Foundation, seven states levy no individual income tax: Texas, Tennessee, Nevada, Florida, Alaska, and South Dakota. Four states have no individual income tax and no corporate income tax: Texas, Nevada, South Dakota, and Wyoming.
Additionally, South Dakota and Wyoming are the only two states in the country that have no income tax, no corporate income tax, and no tax on gross receipts, a tax on a company’s sales without cost-of-business deductions. While Ohio, Texas, and Washington do not have a corporate income tax, they do have a gross receipts tax. Meanwhile, Delaware and Virginia have a gross receipts tax in addition to the corporate income tax.
Weighing the tax burdens of individuals and companies can lead to a general determination of a state’s tax friendliness — meaning lower taxes. In some states, lower taxes also mean fewer social services, higher deficits, and/or dependence on federal subsidies funded by taxpayers in other states.
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