What makes one state more attractive than another as a place to do business? There are a lot of factors, but some, including tax policy, is directly under the control of the Legislature. A new report says that Minnesota’s tax policy is making the state less attractive than it could be for business. In fact, it’s tax policy is the fifth-worst in the country, beating out only Rhode Island (46), Vermont (47), California (48), New York (49), and New Jersey (50).
This morning, the Tax Foundation released the latest edition of its annual publication, the State Business Tax Climate Index. It is “an indicator of which states’ tax systems are the most hospitable to business and economic growth.” The report looks at five taxes as they relate to business: personal income taxes, sales taxes, corporate income taxes, property taxes, and unemployment insurance taxes, using 118 variables to compare the 50 states against each other. The five taxes are weighted in the order given, so that, for example, personal income taxes are 33 percent of the index weight and unemployment taxes are 11 percent. (The authors say the weighting reflects the variation across the states for each kind of tax, so personal income taxes, which range more widely than the others, get the most weight.)
Most of the report is taken up with a description of the economic effects of the various kinds of taxes, how states implement the taxes, and how they vary across states. For example, taxes vary not only by the rate or rates the state applies, but also in the definition of the base (what is taxed) as well as any credits that employers or households may apply against the tax.
The good news for Minnesota is that its standing didn’t fall from the previous year. The bad news is that it didn’t get any better–and scrapes the bottom of the barrel, at 45. Its best showing was in property taxes, where it came in at 26. (Unfortunately, property taxes as only one-third as important in the index as is the individual income tax–for which Minnesota ranks 44.) The rankings are as follows: Corporate taxes: 42; personal income taxes, 44; sales taxes, 36; unemployment insurance tax, 34; property taxes, 26.
The top best states: Wyoming, South Dakota, Alaska, Nevada, and Florida. Some states well-even California improved by letting a temporary tax increase expire. Maryland let its “millionaire’s tax.” Massachusetts is gradually reducing its corporate income tax rate. North Dakota cut income tax rates for both individuals and companies.