One of the most contentious issues between states is the location of various business throughout the United States. While many politicians worry about outsourcing to foreign countries, it can be just as devastating for a region to lose its corporations — and therefore some of its ways of livelihood — to a different part of the country. While some shifts are caused by changes in natural resource production or in economic climates, some are caused by the nature of tax codes in various states.
The Tax Foundation tackled the question by looking at tax codes in each state and evaluating how business friendly the codes are. This is not as simple an issue as it may seem — not only are corporate income taxes variable by state, but personal income taxes matter, as well. A business has to pay more to its employees for them to have same after-tax salary in a state with higher income tax rates. Sales taxes are also a consideration, and even property and unemployment insurance tax rates can factor into the decision.
In compiling the index, the Tax Foundation employed a weighting system that values rates with a higher variance above those with a lower variance. This reflects the fact that companies are more likely to overweigh large discrepancies in tax rates while ignoring smaller gaps. Using the Tax Foundation’s guidelines, individual income taxes are given the most weight, sales and corporate taxes are given their fair dues, and property and unemployment insurance taxes are given the least weight in determining which state tax codes are the most tax friendly to businesses.
With that in mind, let’s take a look at the nine states with the most business-friendly tax codes.