A Cut Below
AMERICA’S LOWEST BUSINESS-TAX STATES
The residential real estate market is all about “location, location, location.” Commercial real estate is no different, asserts Michael Beckers, director of Taxation at Raven Industries. Raven—a Sioux Falls, S.D.-based shipper of plastic, electronic and special-apparel products—has enjoyed nearly 60 years of success, a feat that Beckers largely attributes to the company’s location.
From a tax perspective, he says, South Dakota reigns supreme. Unlike some states where individual cities impose an income tax, South Dakota has no corporate income tax or gross receipts tax. “The fact that South Dakota does not levy a corporate income tax against our income earned in the state allows our business to enjoy a lower state income burden compared to companies located in neighboring states,” Beckers says.
In addition to South Dakota, below are nine other states that are earning rave reviews for their low-tax environment.
Despite levying the eighth-highest property tax in the U.S., the Last Frontier state redeems itself by having no state income tax. Alaska also has a surplus of funds—nearly $12 million in excess—which prevents the tax burden from being placed on businesses and residents. The U.S. Chamber of Commerce lauded Alaska’s tax-friendly business environment in a recent report, praising the state for having two years of state funding for operating and capital budgets; such an amount protects Alaska from fluctuating energy prices, officials say.
Known more for its balmy temperatures than its business environment, Florida is also garnering praise for its tax-friendly policies. The state has one strike against it—imposing an alternative minimum tax on corporations—but Florida more than compensates for this action by lacking an income tax. Also notable is Florida’s unemployment insurance tax policy, which ranks best in the Tax Foundation’s 2015 State Business Tax Climate Index, as well as the state’s favorable sales tax initiatives.
Improvement is the name of the game for Indiana, which recently underwent reforms to lower its tax rates. Under new legislation, Indiana’s corporate income tax rate will fall from 7 percent to 4.9 percent by 2021—an announcement that comes on the heels of the early January reduction of the state’s income tax rate from 3.4 percent to 3.3 percent. Indiana’s excise taxes are also among the nation’s best, Tax Foundation personnel say, despite the state having a high, 7 percent sales tax rate.
What sets Montana apart from a tax perspective is the support it receives from the local government, says Dan Lloyd, business development specialist with the Governor’s Office of Economic Development. Lloyd reveals that Governor Steve Bullock worked with the Montana Legislature in 2013 to lower business equipment taxes for all companies and completely eliminated the tax for 11,000 of them. Montana also doesn’t levy a general sales tax—another key benefit for businesses, Lloyd says.
The Silver State lives up to the gold standard of business practices, according to personnel from the Tax Foundation. In addition to not levying an individual income tax, Nevada also refuses to impose a corporate income tax or a gross receipts tax. Such a policy places Nevada in a unique position since most states compensate for the lost revenue on individuals by taxing corporations, according to Tax Foundation officials. Even so, Nevada’s 6.85 percent sales tax rate is higher than average.
New England has—rightfully so—earned a reputation as an expensive region for business, but New Hampshire bucks the trend, says Michael Bergeron, senior development manager with the New Hampshire Division of Economic Development. Due to few corporate regulations, businesses from other states are “shocked” to learn how economical New Hampshire is, Bergeron says. Along with not imposing a general sales tax, New Hampshire doesn’t tax workers’ wages or salaries; their dividends and interest are taxed, however. “Our approach? Keep more of what a taxpayer earns with the taxpayer,” Bergeron says.
They say everything’s bigger in Texas, but that’s not true from a taxation perspective. Texas’ business taxes rank among the nation’s lowest, thanks to the state’s lack of an income tax for businesses and individuals. Still, the Loan Star State imposes a gross receipts tax on business transactions, Tax Foundation officials say, in addition to taxing intangible properties, such as stocks, bonds and trademarks. The latter policy led to the Tax Foundation ranking Texas last among the top 10 states for business taxes.
Despite imposing all major taxes on businesses except for a capital stock tax, Utah’s low rates make it stand out from the pack. Since 2007, the state has levied a flat, 5 percent tax on both companies and individuals—a move that has streamlined business practices tremendously, asserts Theresa Foxley, managing director with the Governor’s Office of Economic Development. “Transitioning to the single-sales-factor apportionment methodology also signals that we are pursuing economic growth through smart policy,” she says.
The Tax Foundation recently named Wyoming the most business-friendly state—an honor that’s well deserved, says Ben Avery, Business and Industry Division director with the Wyoming Business Council. Not only does the state have no income tax, Wyoming also lacks a corporate income or gross receipts tax. Thank Wyoming’s balanced budget for that, Avery says. The mineral-rich state has no debt, which means that taxpayers and businesses don’t have to compensate for the difference. Sales tax in Wyoming is also a low 4 percent.