Posted 08:02 AM ET
An executive looking for a place to locate his company might do well to consider Wyoming. That state is the most business-friendly in the country, at least when it comes to taxes, according to a new study.
The study, released by the Tax Foundation on Wednesday, found that when all the taxes businesses pay are factored in, Wyoming's rate is less than half the national average. The state is one of three — Nevada and South Dakota are the others — that doesn't have a corporate income tax.
Pennsylvania, meanwhile, wins the dubious distinction of imposing the heaviest tax burden on its businesses, with an overall effective rate that's 45% above the national average.
The study, titled "Location Matters," looked at a range of business taxes — corporate income, sales, property, unemployment, gross receipts and others. The accounting firm KPMG collaborated on the report with the Tax Foundation.
Among the most-populated states, California ranked 34th, Texas 12th, New York 42nd, Florida 19th, and Illinois came in 45th. Ohio, which came in 5th, imposes a low-rate gross receipts tax instead of a corporate income tax.
The study also broke down tax rates faced by several different industries — ranging from call centers to R&D facilities to manufacturing. And it conducted a separate analysis factoring in state tax incentives for new firms — such as tax credits for new jobs, investments and R&D, property tax breaks, and so on.
On that score, the friendliest state for new firms was Nebraska, and the least hospitable was Hawaii, the study found.
"This report helps answer an important question for business owners: What will my company pay in taxes if I move into a state?" said Scott Hodge, the Tax Foundation's president. "Up until now, there had been no comprehensive national tax survey that could answer that question."
A separate analysis by IBD found that states imposing the lowest tax rates on both new and existing businesses produced more jobs during the economic recovery than those states with the highest tax burdens.
In fact, the five states with the lowest tax rates on both new and existing companies saw jobs climb an average 1.14% since the recession ended in June 2009. The overall low business tax states are Wyoming, Nebraska, Georgia, Ohio and Utah
In contrast, the five states with the highest business tax rates — Pennsylania, Massachusetts, Hawaii, Kansas and Rhode Island — had payrolls grow an average of just 0.75%. That's a 52% difference.
"This is exactly what you'd expect," said Richard Vedder, an economist at the University of Illinois. "Businesses respond to the price of resources, and costs are lower in states with low taxes."
By looking at a more comprehensive tax picture, the Tax Foundation says it has created a resource for state politicians trying to improve the competitiveness of their state tax laws, and for business executives looking for places to locate operations.
The study also produced some startling findings. Among them:
A new distribution center in Kansas faces an effective rate of 65.4% — the highest for any industry category in any state.
Louisiana offers so many incentives for new R&D companies that they face an effective tax rate of -10.5%.
But Louisiana doesn't extend this generosity to new distribution centers, which face a sky-high 50% tax rate.
Pennsylvania likewise makes life easy for manufacturers, offering them tax rates as low as 6.1%, among the lowest in the country.
But Pennsylvania is most unkind to other types of business, with tax rates that are the highest, or very close to the highest, for every other industry examined by the study.
Nebraska is the most tax-friendly state for new corporate headquarters, which face an effective rate of just 1.4%. But a mature corporate HQ in Nebraska pays an overall rate of 16.3%.
Hodge said he was surprised the wide variability in tax rates within a state. "When you look at a state's corporate tax rate, you'd think everybody must pay that rate," he said. "But the reality is often starkly different, because of variables in their tax systems."
The study, released by the Tax Foundation on Wednesday, found that when all the taxes businesses pay are factored in, Wyoming's rate is less than half the national average. The state is one of three — Nevada and South Dakota are the others — that doesn't have a corporate income tax.
Pennsylvania, meanwhile, wins the dubious distinction of imposing the heaviest tax burden on its businesses, with an overall effective rate that's 45% above the national average.
The study, titled "Location Matters," looked at a range of business taxes — corporate income, sales, property, unemployment, gross receipts and others. The accounting firm KPMG collaborated on the report with the Tax Foundation.
Among the most-populated states, California ranked 34th, Texas 12th, New York 42nd, Florida 19th, and Illinois came in 45th. Ohio, which came in 5th, imposes a low-rate gross receipts tax instead of a corporate income tax.
The study also broke down tax rates faced by several different industries — ranging from call centers to R&D facilities to manufacturing. And it conducted a separate analysis factoring in state tax incentives for new firms — such as tax credits for new jobs, investments and R&D, property tax breaks, and so on.
On that score, the friendliest state for new firms was Nebraska, and the least hospitable was Hawaii, the study found.
"This report helps answer an important question for business owners: What will my company pay in taxes if I move into a state?" said Scott Hodge, the Tax Foundation's president. "Up until now, there had been no comprehensive national tax survey that could answer that question."
A separate analysis by IBD found that states imposing the lowest tax rates on both new and existing businesses produced more jobs during the economic recovery than those states with the highest tax burdens.
In fact, the five states with the lowest tax rates on both new and existing companies saw jobs climb an average 1.14% since the recession ended in June 2009. The overall low business tax states are Wyoming, Nebraska, Georgia, Ohio and Utah
In contrast, the five states with the highest business tax rates — Pennsylania, Massachusetts, Hawaii, Kansas and Rhode Island — had payrolls grow an average of just 0.75%. That's a 52% difference.
"This is exactly what you'd expect," said Richard Vedder, an economist at the University of Illinois. "Businesses respond to the price of resources, and costs are lower in states with low taxes."
By looking at a more comprehensive tax picture, the Tax Foundation says it has created a resource for state politicians trying to improve the competitiveness of their state tax laws, and for business executives looking for places to locate operations.
The study also produced some startling findings. Among them:
A new distribution center in Kansas faces an effective rate of 65.4% — the highest for any industry category in any state.
Louisiana offers so many incentives for new R&D companies that they face an effective tax rate of -10.5%.
But Louisiana doesn't extend this generosity to new distribution centers, which face a sky-high 50% tax rate.
Pennsylvania likewise makes life easy for manufacturers, offering them tax rates as low as 6.1%, among the lowest in the country.
But Pennsylvania is most unkind to other types of business, with tax rates that are the highest, or very close to the highest, for every other industry examined by the study.
Nebraska is the most tax-friendly state for new corporate headquarters, which face an effective rate of just 1.4%. But a mature corporate HQ in Nebraska pays an overall rate of 16.3%.
Hodge said he was surprised the wide variability in tax rates within a state. "When you look at a state's corporate tax rate, you'd think everybody must pay that rate," he said. "But the reality is often starkly different, because of variables in their tax systems."
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