California Ranks Poorly in Business-Friendly? Tax Study
High taxes are seen as a major cause of the exodus of businesses departing the state for greener fields elsewhere.
WASHINGTON, DC - California ranks near the bottom of the list of states with "business-friendly" tax structures, according to a new study published by the Washington, DC-based Tax Foundation.
The new study - the State Business Tax Climate Index - grades each state in the country based on how supportive of business growth their tax systems were at the start of 2003.
"Tax competition among states is an unpleasant reality for state revenue raisers," said Scott Hodge, executive director of the group and lead author of the new study, "but competition is a godsend to taxpayers. The most effective restraint on state taxes is the knowledge that business will take jobs and prosperity out of state if taxes become unmanageable."
States routinely assemble and publicize generous packages of tax abatements and public spending to lure large employers: baseball teams, auto plants or the corporate headquarters of a major firm, for example. But under the media radar, said Hodges, each state's tax system "is constantly competing with its neighbors for start-ups and business expansion without the benefit of special tax breaks."
The report gauges which tax systems give businesses in their states a leg up in this competition.
According to the report, the ten states that began 2003 with the most business-friendly tax systems are Wyoming, New Hampshire, Nevada, Colorado, Alaska,South Dakota, Florida, Washington, Oregon and Tennessee.
Of these ten, it said, nine owe their high scores "to their determination to dispense with at least one of the major taxes on sales, personal income or corporate income."
The most effective way a state can compete for jobs and economic growth "is to zero out one of the major taxes," said Hodge. "That gives a state a tremendous head-start in the race to grow its economy, saving business not only the tax payment but the administrative compliance burden."
Of the top ten, only Colorado levies all the common taxes, maintaining a very competitive business tax climate by keeping its taxes simple and lower than its neighboring states.
The common characteristics of states that score poorly on the State Business Tax Climate Index are: complex, multi-rate corporate and individual tax codes that impose above-average tax rates at all levels of income; above-average sales tax rates that exempt few business input items; high overall state tax burdens and revenues that have grown faster than citizens' incomes; and tax codes that impose considerable compliance costs on businesses.
The ten states with the least hospitable business tax climates are Mississippi, California, Arkansas, Ohio, Nebraska, Hawaii, New York, Maine, Minnesota and Louisiana.
Hodges stressed that the report doesn't measure the general economic climate - just the tax climate, and that, while the index is comprehensive, it is not exhaustive. "Future research into state taxation will lead to new variables and indexes that will be included in future editions of the report," he said.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
The full State Business Tax Climate Index study online can be found at
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