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Monday, May 10, 2010

Small Business Council State Tax Rankings Report

On April 27, 2010, the Small Business & Entrepreneurship Council released a report, "Business Tax Index 2010: Best to Worst State Tax Systems for Entrepreneurship and Small Business." This report ranks the states and the District of Columbia using 16 factors. The factors:

"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 taxes, 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 top 3 states in this ranking:
  • South Dakota
  • Texas
  • Nevada

The lowest 3 states in the ranking:

  • New Jersey (50) (DC was 51st)
  • Minnesota (49)
  • California (48)

The report includes the rankings for each of the 16 factors and the summary for each state. It is an interesting comparison of the various factors among the states.

Is it enough? Some additional factors to consider:

  • Number and cost of tax expenditures (tax breaks) - not only can they be costly, but typically lead to a high tax rate and greater complexity.
  • What is the degree of income tax conformity with federal rules?
  • Does the sales tax pyramid (impose a tax on a tax because businesses are required to pay sales tax)?
  • Is there a balanced mix of key taxes?
  • Do appropriate accountability measure exist to ensure that any tax breaks are working as intended and are not outdated?

What else would you want to know about a state's tax system that would be of significance to small businesses?

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