2020 State Business Tax Climate Index
By Jared Walczak
TAX FOUNDATION | 1
E X E C UT I V E S UMMA R Y
Executive Summary
The Tax Foundaon’s
State Business Tax Climate Index
enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show
how much
is collected in taxes by state governments, the
Index
is designed to show
how well
states structure their tax systems and provides a road map for improvement.The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. Wyoming, Nevada, and South Dakota have no corporate or individual income tax (though Nevada imposes gross receipts taxes); Alaska has no individual income or state-level sales
The 10 best states in this year’s
Index
are:1. Wyoming2. South Dakota3. Alaska4. Florida5. Montana6. New Hampshire7. Nevada8. Oregon9. Utah10. IndianaThe 10 lowest-ranked, or worst, states in this year’s
Index
are:41. Louisiana42. Iowa43. Maryland44. Vermont45. Minnesota46. Arkansas
47. Conneccut
48. California49. New York50. New Jersey
2020 State Business Tax Climate Index
Note: A rank of 1 is best, 50 is worst. D.C's score and rank do not affect other states. The report shows tax systems as of July 1, 2019 (the beginning of Fiscal Year 2020).Source: Tax Foundaon.
10 Best Business Tax Climates10 Worst Business Tax Climates
2 | STATE BUSINESS TAX CLIMATE INDEX
R E C E N T C H A N G E S
tax; Florida has no individual income tax; and New Hampshire, Montana, and Oregon have no sales tax. This does not mean, however, that a state cannot rank in the top 10 while sll levying all the major taxes. Indiana and Utah, for example, levy all of the major tax types, but do so with low rates on broad bases.The states in the boom 10 tend to have a number of aicons in common: complex, nonneutral taxes with comparavely high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the second highest-rate corporate income tax in the country and a parcularly aggressive treatment of internaonal income, levies an inheritance tax, and maintains some of the naon’s worst-structured individual income taxes.
Notable Ranking Changes in this Year’s
Index
Arizona
As part of the state’s belated conformity with the new federal tax law, Arizona trimmed its income tax rates, bringing the top rate down from 4.54 to 4.5 percent and consolidang the two lowest brackets.
1
The reducon was too modest to improve Arizona’s overall rank, but drove a two-place improvement in Arizona’s rank on the individual income tax component of the
Index,
from 19th to 17th.
1 Jared Walczak, “Arizona Delivers Rate Cuts and Tax Conformity,” Tax Foundation, June 6, 2019, https://taxfoundation.org/arizona-income-tax-cuts-tax-conformity/. 2 Jared Walczak, “Two States Cut Taxes Due to Federal Tax Reform,” Tax Foundation, March 19, 2018, https://taxfoundation.org/two-states-cut-taxes-due-federal-tax-reform. 3 Katherine Loughead, “State Tax Changes as of July 1, 2019,” Tax Foundation, July 11, 2019, https://taxfoundation.org/state-tax-changes-effective-july-1-2019/.
Georgia
In 2018, in response to base broadening from federal tax reform, Georgia lawmakers adopted a tax cut package which reduces individual and corporate income tax rates from 6.0 to 5.5 percent in two phases, beginning with reducons to 5.75 percent for tax year 2019. Rates are scheduled to revert aer 2025, when the federal changes are currently expected to sunset.
2
These rate reducons helped Georgia improve four places on this year’s
Index,
from 36th to 32nd overall, while going from 8th to 6th on the corporate tax component, where the lower rate complements an already compeve overall tax structure, and from 38th to 36th on the individual income tax component. The state’s corporate tax component score, in both the 2019 and 2020
Index,
also benets from the state’s decision to decouple from GILTI, which was newly introduced as an
Index
variable this year.
Indiana
The only state to make midyear rate adjustments, Indiana made another scheduled adjustment to its corporate income tax rate on July 1, 2019, the
Index’
s snapshot date, bringing the rate from 5.75 to 5.5 percent.
3
This reducon was not enough to improve the state’s already highly compeve overall rank, but, along with modestly negave corporate tax changes in similarly ranked states, helped Indiana improve from 18th to 11th on the corporate tax component of the
Index.