When it comes to business taxes, are you aware of how your state measures up?
What makes a state “tax friendly” for your business may not be intuitive, either. Sometimes taxes have an inverse relationship. For example, if a state lacks an income tax, they could have higher sales and property taxes to compensate.
To get a better idea of where your location falls on the scale, take a look at the latest results from the 2017 State Business Tax Climate Index released by the Tax Foundation, a nonpartisan research group. The ranking takes into account individual income taxes, major business taxes, sales taxes, unemployment insurance taxes and taxes on wealth or assets such as property, and is designed to determine how well tax systems are structured. While states are rewarded for transparent and neutral tax codes, they are penalized for convoluted codes or those deemed economically harmful.
Among the highest ranked states or those with the most favorable tax climate for businesses, a common factor is that they lack a major tax, such as the corporate income tax, the individual income tax or the sales tax. For example, Wyoming, Nevada and South Dakota do not have a corporate or individual income tax, and Alaska and Florida leave out the individual income tax.
At the other end of the list, the states with the worst ranking have complex taxes and high rates. New Jersey, for example, has a multi-tiered individual tax rate and imposes both an inheritance tax and an estate tax. Homeowners also pay some of the highest property tax rates in the country.
There are, of course, numerous factors that contribute to a profitable business. Taxes are just one piece of your overall financial profile, but should you be considering a relocation elsewhere, it will be helpful to keep in mind all factors of your potential new professional and financial landscape. Your financial advisor and tax professionals can also help map out a path that makes sense for you and your business.