Taxes are an endless problem that plagues entrepreneurs and small businesses. But April often is the time when the nation takes particular note of tax burdens. After all, April 15 is “Tax Day” – the deadline for filing income taxes. Income taxes certainly warrant the most attention. At the federal level, income-based taxes – the personal income, corporate income, and payroll levies – exact an enormous amount of resources out of the private sector, in order to be spent by politicians and their appointees.
But the tax problems for entrepreneurs and small businesses do not stop at the federal level, and do not end with the income tax. State and localities pile on with their own tax systems. And taxes in the states come in many different forms, including income, property, sales, assorted excise, gross receipts, and death levies, along with a wide array of governmental fees. Indeed, the list of taxes to be paid is quite long.
Each and every tax, of course, eats away at the bottom line of a business. At the same time, though, different taxes affect economic decision-making in different ways. For example, income taxes impact incentives for working, investing and risk taking. Property taxes affect decisions regarding investments in buildings and housing. And consumption-based taxes can divert and reduce consumer purchases.
In the end, taxes matter. They matter at the federal, state and local levels of government. They matter to consumers, entrepreneurs, investors and businesses. They matter in terms of a state’s competitiveness. And they matter when it comes to economic growth and job creation. The Small Business & Entrepreneurship Council’s “Business Tax Index 2008” ranks the states from best to worst in terms of the costs of their tax systems on entrepreneurship and small business. The Index pulls together 16 different tax measures, and combines those into one tax score that allows the 50 states and District of Columbia to be compared and ranked.
The 16 measures are: 1) state’s top personal income tax rate, 2) state’s top individual capital gains tax rate, 3) state’s top corporate income tax rate, 4) state’s top corporate capital gains tax rate, 5) any added income tax on S-Corporations, 6) whether or not the state imposes an alternative minimum tax on individuals, 7) whether or not the state imposes an alternative minimum tax on corporations, 8) whether or not the state’s personal income tax brackets are indexed for inflation, 9) property taxes, 10) consumption-based taxes (i.e., sales, gross receipts and excise taxes), 11) whether or not the state imposes a death tax, 12) unemployment tax, 13) whether or not the state has a tax limitation mechanism, 14) whether or not the state imposes an Internet access tax, 15) gas tax, and 16) diesel tax.
The 15 best state tax systems are: 1) South Dakota, 2) Nevada, 3) Wyoming, 4) Washington, 5) Florida, 6) Alaska, 7) Texas, 8) Colorado, 9) Alabama, 10) Mississippi, 11) South Carolina, 12) Tennessee, 13) Missouri, 14) Ohio, and 15) Virginia.
The 15 worst state tax systems are: 37) North Carolina, 38) Nebraska, 39) West Virginia, 40) Hawaii, 41) Idaho, 42) Vermont, 43) Massachusetts, 44) New York, 45) Rhode Island, 46) Maine, 47) Iowa, 48) California, 49) Minnesota, 50) New Jersey, and 51) District of Columbia.
Following are the “Business Tax Index” scores and rankings, followed by brief descriptions of why each factor is included in the Index, and how it is measured.
Full Report and State Rankings http://www.sbecouncil.org/states/