More complex tax codes are damaging the attractiveness of some US states to businesses, according to nonpartisan Washington, DC-based research group the Tax Foundation. Its recently released 2014 State Business Tax Climate Index saw Massachusetts, Texas, Virginia and Kentucky all drop down the ranking compared with last year, due to more complicated state tax codes. Massachusetts, which ranked 24th in the 2013 State Business Tax Climate Index, dropped to 25th, Texas dropped from the top 10 into 11th, while Virginia and Kentucky each fell three places to 26th and 27th, respectively.
“The states that lost ground this year usually did so because they changed policy in a way that makes the tax code more complex, burdensome, or economically harmful,” said Scott Drenkard, a Tax Foundation economist.
Some states improved their standings, including Arizona, which climbed five places to 22nd. This improved ranking was largely attributed to worsening conditions in other states, however. Kansas climbed six places to number 20 thanks to its low individual income tax rates, income sheltering incentives and low sales tax rates.
Mr Drenkard found that states that improved their tax status did so because they were moving their legislatures closer to a tax code that collects revenue without unnecessarily distorting business decisions. “Their tax codes became more neutral,” he said.
The 10 best states in this year’s index were Wyoming, South Dakota, Nevada, Alaska, Florida, Washington, Montana, New Hampshire, Utah and Indiana.
“The absence of a major tax is a dominant factor in vaulting many of these ten states to the top of the rankings,” Mr Drenkard said. “Wyoming, Nevada and South Dakota have no corporate or individual income tax; Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax.”