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.
First up on the list is Utah. With some of the lowest corporate and property tax rates in the nation, as well as scores in the top half of states in the other three categories, it’s a surprise that more businesses aren’t found in the Western state. And since it is relatively lacking in corporate activity outside of the Salt Lake City area, there’s plenty of room to expand.
8. New Hampshire
If you’re looking for an Eastern state to locate your business in, you might want to check out New Hampshire, the No. 8 finisher on our list. Its individual income tax and sales tax rates are some of the lowest in the nation. However, it makes up for the difference with high values in corporate, unemployment insurance, and property tax rates, so it may be wise to consider which rates matter the most to you before locating there.
We move back out West for the next state on our list, Montana. With rates that are attractive all across the board, Montana comes in as a solid choice for businesses looking for a less metropolitan setting for their headquarters. For now, though, relocating to Montana is not exactly a trend: A good number of the major companies with headquarters in the state are based around the region’s flagship industries, such as mining and energy.
Staying out West, we move to Washington, the No. 6 spot on our list. It’s no wonder that Seattle has drawn so many corporations like Microsoft and Starbucks when you factor in the state’s tax rates. Especially strong is Washington’s first-place ranking in individual income tax rates, the most heavily weighted component of the ranking. However, one thing to watch for is the state’s high sales tax rate, which makes up the revenue for the nonexistent state income tax.
If you’re looking to plant some palm trees in your business’s courtyard, the Tax Foundation recommends Florida over bottom-five finisher California. With no personal income tax rate and solid numbers in the other categories, as well, Florida is one of the best all-around picks in the country. Moreover, it has the customer base, the workforce, the infrastructure, and the weather to support the vast majority of businesses.
Coming in at fourth on our list is Alaska, a state that features some of the lowest income tax and sales tax rates in the country. This is unusual, because states with no income tax typically have a high sales tax rate, and sometimes vice versa. Despite the state’s warm climate for businesses, the actual climate is somewhat harsher, and Alaska’s distance from the rest of the continental U.S. alone is reason enough why the state will probably not become a business haven anytime soon.
The third-place finisher on our list is Nevada, home to the gambling industry of Las Vegas. Where Nevada shines is in the categories of individual income tax and corporate tax rates, giving businesses two strong reasons to be excited about being located in the state. Nevada has had its fair share of trouble over the past few months, though: It was one of the hardest-hit states by the housing market downturn, and it still comes in as the state with the highest level of unemployment.
2. South Dakota
From one of the states with the highest unemployment rates we turn to one with some of the lowest: South Dakota. South Dakota takes the No. 2 spot on our list on the basis of its individual income tax and corporate tax rates, while it also performs admirably in the property tax category. With expanding industries like agriculture, the public sector, and other areas of the service sector, the state is in no shortage of businesses to take advantage of its attractive tax laws.
The top spot on our list belongs to none other than Wyoming, another Western state. Wyoming is at the top of the charts when it comes to corporate and individual income tax rates, securing its position as 2014′s most business-friendly state based on our criteria. Wyoming also puts up decent numbers in the other categories, especially sales taxes, where it finished in the top 15. All in all, if tax rates are your concern, you should give Wyoming a try.