Issuu on Google+


Business Tax Index 2012: Best to Worst State Tax Systems for Entrepreneurship and Small Business Entrepreneurs and investors – along with job seekers and consumers – remain concerned about the state of our economy. A recovery that officially began in mid-2009 – after one of the worst recessions since the Great Depression – has been grossly under-performing. While there’s been a great deal of political debate and disagreement over why the economy has performed so badly, there’s really no secret when you look at the economics. It’s all about very real threats. Specifically, the threats that weigh on risk taking, economic growth and job creation in the public policy arena. Just consider the costs and questions swirling around federal policymaking. First, the threat of major tax increases – including on personal income, capital gains, dividends, and assets at death – loom large in 2013. While those tax increases already are scheduled under current law, additional tax hikes stand out as added threats due to the unprecedented expansion in federal spending and debt in recent years. The massive Affordable Care Act (Obamacare) also includes major tax hikes that are set to kick in the next year and in 2014. Second, the regulatory burden on the private sector has increased dramatically, with even more regulation threatened. Government’s regulatory intrusions have particularly focused on health care, energy, and the financial industry. Those increased regulatory burdens mean more costs, and reduced innovation and production. Third, other than finally passing and signing three trade deals negotiated during the Bush administration, the U.S. over the past three-plus years has largely abdicated its role as a global leader for reducing trade barriers and enhanced international opportunity. That has translated into fewer opportunities for U.S. businesses and consumers. Fourth, monetary policy since the summer of 2008 has been so expansive that there is no precedent in U.S. history. That has helped to reduce the value of the dollar, pushed energy (especially oil) prices higher, boosted inflation, and threatened higher inflation in the future. But policy not only matters to entrepreneurs and investors at the federal level, but at the state and local levels as well. That very much includes taxes. While “Tax Day” in 2012 is April 17 – the deadline for filing federal income taxes – it is critical to understand that federal, state and local taxes are a burden on entrepreneurs, investors and the economy throughout the year. Each tax hits business directly or indirectly, distorts the workings of the marketplace, and diminishes economic efficiency by shifting resources from the private sector (guided by prices, profits and losses) into government (guided by politics and special interest pressures). But different taxes affect economic decision-making in different ways and impact the economy to differing degrees. For example, income taxes are the most damaging levies, as they impact 2


incentives for working, investing and entrepreneurship. Property taxes affect decisions regarding investments in buildings and housing. And consumption-based taxes can divert and reduce consumer purchases. In the end, though, all taxes matter, whether imposed at the federal, state or local level 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 2012” 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 18 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 18 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 taxes, 13) whether or not the state has a tax limitation mechanism, 14) whether or not the state imposes an Internet access tax, 15) “Amazon” taxes, 16) gas tax, 17) diesel tax, and 18) wireless taxes. The 15 Best State Tax Systems are: 1) South Dakota, 2) Texas, 3) Nevada, 4) Wyoming, 5) Washington, 6) Florida, 7) Alaska, 8)Alabama, 9) Ohio, 10) Colorado, 11) Mississippi, 12) Michigan, 13) South Carolina, 14) Tennessee, and 15) Missouri. The 15 Worst State Tax Systems are: 37) Nebraska, 38) North Carolina, 39) Illinois, 40) Oregon, 41) Rhode Island, 42) Connecticut, 43) Hawaii, 44) Vermont, 45) California, 46) Maine, 47) Iowa, 48) New York, 49) New Jersey, 50) Minnesota, and 51) District of Columbia. On the positive side, states like Indiana, Arizona, Maine, Michigan, North Dakota, Delaware, and Oklahoma made some positive steps forward in providing tax relief. Also, in addition to some recent pro-competitive moves regarding income taxes, Ohio’s death tax will be eliminated next year (to be reflected in next year’s Business Tax Index), and Indiana has begun a long phase out of its death levy. In contrast, Oregon, Connecticut, Illinois and New York officials, for example, made their states less competitive due to various tax increases. 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.

3


Business Tax Index 2012: State Rankings Rank

State

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

South Dakota Texas Nevada Wyoming Washington Florida Alaska Alabama Ohio Colorado Mississippi Michigan South Carolina Tennessee Missouri Virginia Arizona Oklahoma Utah Georgia North Dakota Louisiana Arkansas New Mexico New Hampshire

BTI

11.813 12.339 12.614 17.360 17.890 23.339 25.430 26.009 26.838 27.260 31.572 32.676 32.682 32.995 33.452 33.460 33.796 33.970 34.455 35.258 35.426 35.535 36.156 36.779 37.142

Rank

State

26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

Kentucky

4

Indiana Pennsylvania Kansas Montana West Virginia Maryland Delaware Wisconsin Massachusetts Idaho Nebraska North Carolina Illinois Oregon Rhode Island Connecticut Hawaii Vermont California Maine Iowa New York New Jersey Minnesota Dist. of Columbia

BTI

38.038 38.212 38.812 38.844 39.280 40.401 41.035 41.094 41.778 44.227 44.802 45.776 46.053 46.697 48.524 49.077 49.550 49.576 52.047 52.219 52.469 53.411 54.132 54.730 55.075 63.007


• Personal Income Tax. State personal income tax rates affect individual economic decisionmaking in important ways. A high personal income tax rate raises the costs of working, saving, investing, and risk taking. Personal income tax rates vary among states, therefore impacting crucial economic decisions and activities. In fact, the personal income tax influences business far more than generally assumed because more than 92 percent of businesses file taxes as individuals (e.g., sole proprietorship, partnerships and S-Corps.), and therefore pay personal income taxes rather than corporate income taxes. Measurement in the Business Tax Index: state’s top personal income tax rate.1 State Rankings of Top Personal Income Tax Rates Rank

1t 1t 1t 1t 1t 1t 1t 1t 1t 10 11 12 13 14 15 16 17 18 19t 19t 19t 22t 22t 24 25

State

PIT

Alaska

0.000

Florida

0.000

Nevada

0.000

New Hampshire

0.000

South Dakota

0.000

Tennessee

0.000

Texas

0.000

Washington

0.000

Wyoming

0.000

Pennsylvania

3.070

Alabama

3.250

Indiana

3.400

Louisiana

3.900

North Dakota

3.990

Michigan

4.350

Arizona

4.540

Colorado

4.630

New Mexico

4.900

Illinois

5.000

Mississippi

5.000

Utah

5.000

Massachusetts

5.250

Oklahoma

5.250

Maryland

5.500

Virginia

5.750

Rank

State

26 27 28 29t 29t 29t 32 33 34 35 36 37 38t 38t 40t 40t 42 43 44 45 46t 46t 48 49 50 51

Iowa

5.837

Ohio

5.925

Rhode Island

5.990

Georgia

6.000

Kentucky

6.000

Missouri

6.000

Kansas

6.450

West Virginia

6.500

Connecticut

6.700

Delaware

6.750

Nebraska

6.840

Montana

6.900

Arkansas

7.000

South Carolina

7.000

North Carolina

7.750

Wisconsin

7.750

Idaho

7.800

Minnesota

7.850

Maine

8.500

New York

8.820

Dist. of Columbia

8.950

Vermont

8.950

New Jersey

8.970

Oregon

9.900

1

PIT

California

10.300

Hawaii

11.000

Data Source: CCH Incorporated, 2012 State Tax Handbook, Federal of Tax Administrators at www.taxadmin.org, Tax Foundation, and state specific sources. Note: Personal income tax rates reflect deductibility of federal income taxes in certain states.

5


• Individual Capital Gains Tax. One of the biggest obstacles that start-ups or expanding businesses face is access to capital. State capital gains taxes, therefore, affect the economy by directly impacting the rate of return on investment and entrepreneurship. Indeed, capital gains taxes are direct levies on risk taking, or the sources of growth in the economy. High capital gains taxes restrict access to capital, and help to restrain or redirect risk taking. Measurement in the Business Tax Index: state’s top capital gains tax rate on individuals.2 State Rankings of Top Capital Gains Tax Rates Rank

State

ICGT

Rank

State

ICGT

1t 1t 1t 1t 1t 1t 1t 1t 1t 10 11 12 13 14 15 16 17 18 19 20 21t 21t 21t 24 25

Alaska

0.000

Massachusetts

5.300

Florida

0.000

Maryland

5.500

Nevada

0.000

Virginia

5.750

New Hampshire

0.000

Ohio

5.925

South Dakota

0.000

Rhode Island

5.990

Tennessee

0.000

Georgia

6.000

Texas

0.000

Kentucky

6.000

Washington

0.000

Missouri

6.000

Wyoming

0.000

Kansas

6.450

New Mexico

2.450

West Virginia

6.500

Pennsylvania

3.070

Connecticut

6.700

Wisconsin

3.100

Delaware

6.750

Indiana

3.400

Nebraska

6.840

South Carolina

3.920

Montana

6.900

North Dakota

3.990

Hawaii

7.250

Alabama

4.250

Iowa

7.633

Michigan

4.350

North Carolina

7.750

Arizona

4.540

Idaho

7.800

Colorado

4.630

Minnesota

7.850

Arkansas

4.900

Maine

8.500

Illinois

5.000

New York

8.820

Mississippi

5.000

Dist. of Columbia

8.950

Utah

5.000

Vermont

8.950

Louisiana

5.100

New Jersey

8.970

Oklahoma

5.250

26 27 28 29 30 31t 31t 31t 34 35 36 37 38 39 40 41 42 43 44 45 46 47t 47t 49 50 51

Oregon

9.900

2

California

10.300

Data Source: CCH Incorporated, 2012 State Tax Handbook, and state specific sources. Note: Capital gains tax rates reflect deductibility of federal income taxes in certain states.

6


• Corporate Income Tax. State corporate income tax rates similarly affect a broad range of business decisions — most clearly decisions relating to investment and location – and obviously make a difference in the bottom line returns of corporations. Measurement in the Business Tax Index: state’s top corporate income tax rate.3 State Rankings of Top Corporate Income Tax Rates Rank

1t 1t 1t 1t 1t 1t 7 8 9t 9t 9t 12 13 14 15 16t 16t 16t 16t 16t 21 22t 22t 24 25

State

CIT

Nevada

0.000

Ohio

0.000

South Dakota

0.000

Texas

0.000

Washington

0.000

Wyoming

0.000

Alabama

4.225

Colorado

4.630

Mississippi

5.000

South Carolina

5.000

Utah

5.000

North Dakota

5.150

Missouri

5.156

Louisiana

5.200

Florida

5.500

Georgia

6.000

Kentucky

6.000

Michigan

6.000

Oklahoma

6.000

Virginia

6.000

Hawaii

6.400

Arkansas

6.500

Tennessee

6.500

Montana

6.750

North Carolina

6.900

Rank

State

26 27 28t 28t 28t 31 32 33 34 35 36 37t 37t 37t 40 41 42 43t 43t 43t 46 47 48 49 50 51

Arizona

6.968

Kansas

7.000

Idaho

7.600

New Mexico

7.600

Oregon

7.600

West Virginia

7.750

Nebraska

7.810

Wisconsin

7.900

Massachusetts

8.000

Maryland

8.250

New York

8.307

Indiana

8.500

New Hampshire

8.500

Vermont

8.500

Delaware

8.700

California

8.840

Maine

8.930

Connecticut

9.000

New Jersey

9.000

Rhode Island

9.000

Alaska

9.400

Illinois

9.500

Minnesota

9.800

Iowa

9.900

Dist. of Columbia

9.975

Pennsylvania

9.990

3

CIT

Data Source: CCH Incorporated, 2012 State Tax Handbook, the Federation of Tax Administrators, Tax Foundation, and state specific sources. Note: Corporate income tax rates reflect deductibility of federal income taxes in certain states.

7


• Corporate Capital Gains Tax. Again, access to capital is an enormous obstacle for businesses, and state capital gains taxes affect the economy by directly reducing the rate of return on investment and entrepreneurship. High capital gains taxes – including on corporate capital gains – restrict access to capital, and help to restrain or redirect risk taking. Measurement in the Business Tax Index: state’s top capital gains tax rate on corporations.4 State Rankings of Top Corporate Capital Gains Tax Rates Rank

State

CCGT

Rank

State

CCGT

1t 1t 1t 1t 1t 1t 7 8 9 10 11t 11t 11t 14 15 16 17 18t 18t 18t 18t 18t 23t 23t 25

Nevada

0.000

North Carolina

6.900

Ohio

0.000

Arizona

6.968

South Dakota

0.000

Kansas

7.000

Texas

0.000

Idaho

7.600

Washington

0.000

New Mexico

7.600

Wyoming

0.000

Oregon

7.600

Hawaii

4.000

West Virginia

7.750

Alabama

4.225

Nebraska

7.810

Alaska

4.500

Wisconsin

7.900

Colorado

4.630

Massachusetts

8.000

Mississippi

5.000

Maryland

8.250

South Carolina

5.000

New York

8.307

Utah

5.000

Indiana

8.500

North Dakota

5.150

New Hampshire

8.500

Missouri

5.156

Vermont

8.500

Louisiana

5.200

Delaware

8.700

Florida

5.500

California

8.840

Georgia

6.000

Maine

8.930

Kentucky

6.000

Connecticut

9.000

Michigan

6.000

New Jersey

9.000

Oklahoma

6.000

Rhode Island

9.000

Virginia

6.000

Illinois

9.500

Arkansas

6.500

Minnesota

9.800

Tennessee

6.500

Iowa

9.900

Montana

6.750

26 27 28 29t 29t 29t 32 33 34 35 36 37 38t 38t 38t 41 42 43 44t 44t 44t 47 48 49 50 51

Dist. of Columbia

9.975

Pennsylvania

9.990

4

Data Source: CCH Incorporated, 2012 State Tax Handbook, the Federation of Tax Administrators, and state specific sources. Note: Capital gains tax rates reflect deductibility of federal income taxes in certain states.

8


• Additional Income Tax on S-Corporations. Subchapter S-Corporations let certain businesses adopt the benefits of a corporation, while allowing income to pass through to be taxed at the individual level. Most states recognize S Corporations, but a few either tax such businesses like other corporations or impose some kind of added tax. Such an additional income tax, again, raises costs, restrains investment, and hurts the state’s competitiveness. Measurement in the Business Tax Index: additional income tax imposed on S-Corporations beyond the top personal income tax rate.5

• Individual Alternative Minimum Tax. The individual alternative minimum tax (AMT) imposes a minimum tax rate that must be paid by individuals, regardless the tax credits or deductions taken. The AMT diminishes the effectiveness of potentially positive, pro-growth tax relief measures, while also raising the costs of tax compliance. Measurement in the Business Tax Index: state individual alternative minimum tax (states imposing an individual AMT receive a score of “1” and states that do not receive a score of “0”).6

• Corporate Alternative Minimum Tax. The corporate alternative minimum tax (AMT) imposes a minimum tax rate that must be paid by corporations, regardless of the available tax credits or deductions taken. Again, the AMT diminishes the effectiveness of potentially positive, pro-growth tax relief measures, and hikes compliance costs, in particular by forcing firms to effectively calculate their taxes under two tax codes. Measurement in the Business Tax Index: state corporate alternative minimum tax (states imposing an individual AMT receive a score of “1” and states that do not receive a score of “0”).7

• Indexing Personal Income Tax Rates. Indexing income tax rates for inflation is a positive tax measure, which ensures that inflation does not push individuals into higher tax brackets. Without such indexation, one can be pushed into a higher tax bracket without any increases in real income. Measurement in the Business Tax Index: state indexing of personal income tax rates (states indexing their personal income tax rates receive a score of “0” and states that do not receive a score of “1”).8

5

Data Source: CCH Incorporated, 2012 State Tax Handbook, and state specific sources. Data Source: CCH Incorporated, 2012 State Tax Handbook, and state specific sources. 7 Data Source: CCH Incorporated, 2012 State Tax Handbook. 8 Data Source: The Federation of Tax Administrators. 6

9


• Property Taxes. Property taxes influence decisions as to where businesses, entrepreneurs and employees choose to locate, as well as decisions relating to investments in business facilities and homes. Measurement in the Business Tax Index: state and local property taxes (property taxes as a share of personal income).9 State Rankings of State and Local Property Taxes (Property Taxes as a Share of Personal Income) Rank

State

PropTax

1 2 3 4 5 6 7 8 9 10 11t 11t 13 14 15 16 17 18 19 20 21 22 23 24 25

Alabama

1.53

Arkansas

1.71

Oklahoma

1.74

Delaware

1.83

New Mexico

1.86

Louisiana

1.93

Kentucky

2.07

Tennessee

2.20

West Virginia

2.28

Hawaii

2.40

Maryland

2.52

North Carolina

2.52

Missouri

2.56

Idaho

2.60

Mississippi

2.64

Utah

2.68

South Dakota

2.89

Washington

2.91

North Dakota

2.92

South Carolina

3.05

Colorado

3.07

Pennsylvania

3.11

Georgia

3.18

Ohio

3.23

Minnesota

3.25

Rank

State

26t 26t 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

Arizona

3.28

Oregon

3.28

Virginia

3.29

Indiana

3.36

Iowa

3.51

Kansas

3.52

California

3.53

Nevada

3.59

Nebraska

3.70

Massachusetts

3.75

Montana

3.84

Alaska

3.96

Texas

4.01

Florida

4.24

Illinois

4.33

Michigan

4.34

Wisconsin

4.41

Dist. of Columbia

4.46

Maine

4.55

New York

4.56

Connecticut

4.61

Rhode Island

4.96

Wyoming

5.19

Vermont

5.29

New Jersey

5.36

New Hampshire

5.75

9

PropTax

2008-09 latest state and local numbers available from the U.S. Bureau of the Census, U.S. Department of Commerce.

10


• Sales, Gross Receipts and Excise Taxes. State and local sales, gross receipts and excise (including tobacco, alcohol and insurance) taxes impact the economic decisions of individuals and families, as well as various businesses. High consumption-based taxes can re-direct consumer purchases, and, especially if combined with other levies like income and property taxes, can serve as real disincentives to productive economic activity. In addition, gross receipts taxes present problems because, unlike other consumption-based levies, they are largely hidden from the view of consumers, and therefore, are easier to increase. Measurement in the Business Tax Index: state and local sales, gross receipts and excise taxes (sales, gross receipts and excise taxes [less revenues from motor fuel taxes, since gas and diesel tax rates are singled out in the Index] as a share of personal income).10 State Rankings of State and Local Sales, Gross Receipts and Excise Taxes (Sales, Gross Receipts and Excise Taxes as a Share of Personal Income) Rank

State

SGRETax

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17t 17t 17t 20 21 22 23 24 25

Oregon

0.59

Montana

1.03

Delaware

1.08

New Hampshire

1.25

Alaska

1.72

Massachusetts

1.74

Virginia

2.08

Maryland

2.20

Connecticut

2.59

New Jersey

2.61

Pennsylvania

2.76

South Carolina

2.77

Idaho

2.86

Colorado

2.89

Wisconsin

2.90

Missouri

2.96

Maine

2.97

North Carolina

2.97

Rhode Island

2.97

California

3.01

Ohio

3.04

Nebraska

3.05

Vermont

3.10

Minnesota

3.17

Iowa

3.23

Rank

State

26t 26t 28 29 30 31 32 33 34 35t 35t 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

Dist. of Columbia

3.29

Kansas

3.29

Georgia

3.30

Kentucky

3.31

Utah

3.39

West Virginia

3.42

Illinois

3.43

North Dakota

3.48

Michigan

3.55

New York

3.56

Oklahoma

3.56

Alabama

3.65

Indiana

3.80

Arizona

4.06

Texas

4.08

South Dakota

4.10

Florida

4.15

Mississippi

4.29

Tennessee

4.48

Arkansas

4.71

New Mexico

4.88

Nevada

4.98

Louisiana

5.31

Wyoming

5.40

Washington

5.49

Hawaii

5.78

10

SGRETax

2008-09 latest state and local numbers available from the U.S. Bureau of the Census, U.S. Department of Commerce.

11


• Unemployment Tax Rates. The unemployment tax on wages is another burden on entrepreneurs and business. High state unemployment tax rates increase the relative cost of labor versus capital, and provide incentives for labor-intensive businesses to flee from high-tax states to low-tax states. Measurement in the Business Tax Index: unemployment tax rate is adjusted as follows: maximum state tax rate applied to state unemployment tax wage base, with that amount as a share of the state average wage.11 State Rankings of Adjusted Unemployment Taxes (Maximum State Tax Rate Applied to State Wage Base and Then Taken as a Share of State Average Pay) Rank

State

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18t 18t 20 21 22 23 24 25

California Dist. of Columbia Arizona Georgia Virginia Florida Louisiana Colorado Alabama Kansas New York Texas Delaware Connecticut Pennsylvania Nebraska Ohio New Hampshire Mississippi Maryland Michigan Indiana Arkansas Tennessee Kentucky

UnempTax

0.79 0.85 0.94 1.08 1.12 1.13 1.23 1.25 1.38 1.48 1.59 1.72 1.77 1.93 1.96 1.99 2.08 2.17 2.17 2.21 2.24 2.27 2.28 2.30 2.33

11

Rank

State

UnempTax

26 27 28 29 30 31 32 33 34 35 36t 36t 38 39 40 41 42 43 44 45 46 47 48 49 50 51

Maine

2.37 2.45 2.48 2.97 3.08 3.12 3.13 3.14 3.22 3.38 3.41 3.41 3.51 3.62 3.75 4.02 4.36 4.49 4.56 4.70 5.41 5.70 5.87 6.02 6.77 7.18

Illinois West Virginia New Mexico Wisconsin Vermont Missouri Massachusetts South Dakota North Carolina Nevada New Jersey South Carolina Alaska Oklahoma Oregon Rhode Island Montana Washington Hawaii Wyoming Minnesota Iowa Idaho Utah North Dakota

Data Source: Latest unemployment tax rates, wage base, and average wage data from the U.S. Bureau of Labor Statistics.

12


• Death Taxes. The federal government levies a death tax, but so do various states. Death taxes have several problems. In terms of fairness, individuals pay a staggering array of taxes, including on business earnings, over a lifetime, but then are socked with another tax on the total assets at death. High state death taxes offer incentives to move investment and business ventures to less taxing climates; foster wasteful expenditures on tax avoidance, estate planning and insurance; and force many businesses to be sold, borrowed against or closed down. Measurement in the Business Tax Index: state death taxes (states levying estate or inheritance taxes receive a score of “3” and states that do not receive a score of “0”).12

• Tax Limitation States. Requiring supermajority votes from elected officials and/or approval from voters in order to increase or impose taxes, serve as checks on the growth of taxes and government in general. According to Americans for Tax Reform, both taxes and spending do in fact grow more slowly in tax limitation states, and economies expand faster in such states as well. Measurement in the Business Tax Index: tax limitation status (states without some form of tax limitation check receive a score of “1,” and states with some kind of tax limitation check receive a score of “0”).13

• Internet Taxes. The Internet serves as a tremendous boost to economic growth and a great expansion of economic opportunity. For small businesses, the Internet allows for greater access to information and markets. Indeed, the Internet gives smaller enterprises access to global markets that they might not have had in the past. Unfortunately, some states have chosen to impose sales taxes on Internet access. Measurement in the Business Tax Index: Internet access tax (states without such a sales access tax score “0,” and states with such taxes score “1”).14 • “Amazon” Taxes. As defined by the Tax Foundation, “Amazon” taxes, “nicknamed after their most visible target, require retailers that have contracts with ‘affiliates’—independent persons within the state who post a link to an out-of-state business on their website and get a share of revenues from the out-of-state business—to collect the state’s sales tax.” This is an added cost and tax on a host of entrepreneurs and small businesses operating online, and has resulted in lost business as “affiliate” programs have been ended in certain states with such levies. Measurement in the Business Tax Index: “Amazon” tax (states without such a sales tax score “0,” and states with such a tax score “1”).15

12

Data Source: “2012 State Death Tax Chart,” McGuireWoods LLP, March 2012. Source: National Conference of State Legislatures at www.ncsl.org. 14 Steven Maguire and Nonna Noto, “Internet Taxation: Issues and Legislation in the 109 th Congress,” CRS Report for Congress, February 2, 2006, and Daniel Castro, “The Case for Tax-Free Internet Access: A Primer on the Internet Tax Freedom Act,” The Information Technology & Innovation Foundation, June 2007. 15 Data Source: Joseph Henchman, “‘Amazon Tax’ Laws Signal Business Unfriendliness And Will Worsen ShortTerm Budget Problems,” The Tax Foundation, March 2010, and assorted state-based sources. 13

13


• Gas Tax. Every business is affected by the costs of operating motor vehicles -- from trucking firms to the home-based business paying for delivery services. State government directly impacts these costs through taxes on motor fuels. Measurement in the Business Tax Index: state gas tax (dollars per gallon).16 State Rankings of State Gas Taxes (Dollars Per Gallon of Gasoline) Rank

State

1 2 3 4 5 6 7 8 9 10 11 12t 12t 14 15 16 17t 17t 19t 19t 21t 21t 21t 24 25

Alaska

GasTax 0.080

Wyoming

0.140

New Jersey

0.145

South Carolina

0.168

Oklahoma

0.170

Missouri

0.173

Mississippi

0.188

New Mexico

0.189

Arizona

0.190

New Hampshire

0.196

Virginia

0.198

Louisiana

0.200

Texas

0.200

Alabama

0.209

Tennessee

0.214

Arkansas

0.218

Colorado

0.220

Iowa

0.220

Delaware

0.230

North Dakota

0.230

Dist. of Columbia

0.235

Maryland

0.235

Massachusetts

0.235

South Dakota

0.240

Utah

0.245

Rank

State

GasTax

26t 26t 28 29 30t 30t 32 33 34 35 36 37 38 39 40 41 42 43 44t 44t 46 47 48 49t 49t 51

Idaho

0.250

Kansas

0.250

Vermont

0.261

Nebraska

0.276

Kentucky

0.278

Montana

0.278

Ohio

0.280

Minnesota

0.281

Georgia

0.294

Oregon

0.310

Maine

0.315

Pennsylvania

0.323

Wisconsin

0.329

Rhode Island

0.330

Nevada

0.331

West Virginia

0.334

Florida

0.350

Washington

0.375

Illinois

0.389

Indiana

0.389

North Carolina

0.392

Michigan

0.394

Hawaii

0.471

California

0.486

Connecticut

0.486

New York

0.490

16

Data Source: “Notes to State Motor Fuel Excise and Other Tax Rates,” January 1, 2012, American Petroleum Institute.

14


• Diesel Tax. Again, every business is affected by the costs of operating motor vehicles, and state government directly impacts these costs through taxes on motor fuels. Measurement in the Business Tax Index: state diesel tax (dollars per gallon).17

State Rankings of State Diesel Taxes (Dollars Per Gallon of Diesel Fuel) Rank

State

Diesel

1 2t 2t 4 5 6 7 8 9 10 11 12t 12t 14 15 16 17 18t 18t 20 21t 21t 21t 24 25

Alaska

0.080

Oklahoma

0.140

Wyoming

0.140

South Carolina

0.168

Missouri

0.173

New Jersey

0.175

Tennessee

0.184

Mississippi

0.188

Arizona

0.190

Kentucky

0.195

New Hampshire

0.196

Louisiana

0.200

Texas

0.200

Virginia

0.201

Colorado

0.205

Alabama

0.219

Delaware

0.220

Arkansas

0.228

New Mexico

0.228

North Dakota

0.230

Dist. of Columbia

0.235

Iowa

0.235

Massachusetts

0.235

South Dakota

0.240

Maryland

0.243

Rank

State

Diesel

26 27 28t 28t 30 31 32t 32t 34 35 36 37 38 39 40 41 42 43 44t 44t 46 47 48 49 50 51

Utah

0.245

Idaho

0.250

Kansas

0.270

Nebraska

0.270

Minnesota

0.276

Ohio

0.280

Montana

0.286

Nevada

0.286

Vermont

0.290

Oregon

0.303

Florida

0.305

Georgia

0.319

West Virginia

0.321

Maine

0.327

Wisconsin

0.329

Rhode Island

0.330

Washington

0.375

Michigan

0.379

North Carolina

0.392

Pennsylvania

0.392

Illinois

0.437

Connecticut

0.462

Indiana

0.490

New York

0.495

Hawaii

0.498

California

0.515

17

Data Source: “Notes to State Motor Fuel Excise and Other Tax Rates,” January 1, 2012, American Petroleum Institute.

15


• Wireless Tax. Wireless users – entrepreneurs, small businesses, families and individuals – face high and discriminatory taxes across much of the nation. Such taxes impede investment in wireless infrastructure, hit low and middle-income earners hard, and discourage deployment and adoption of broadband services. Measurement in the Business Tax Index: wireless sales taxes (an index of wireless sales taxes, which is then adjusted to 10 percent of the index value).18

State Rankings of Wireless Taxes Rank

1 2 3 4t 4t 6 7 8 9 10 11 12 13 14t 14t 16t 16t 18 19 20 21 22 23 24 25

State

Wireless

Oregon

0.018

Nevada

0.021

Idaho

0.022

Montana

0.061

West Virginia

0.061

Delaware

0.063

Louisiana

0.064

Virginia

0.066

Alaska

0.068

Connecticut

0.071

Maine

0.073

Michigan

0.074

Alabama

0.075

Hawaii

0.079

Massachusetts

0.079

Iowa

0.080

Wyoming

0.080

Ohio

0.081

New Hampshire

0.083

Wisconsin

0.084

Vermont

0.086

Georgia

0.087

New Jersey

0.090

Mississippi

0.092

Minnesota

0.095

Rank

State

26t 26t 28 29 30 31 32t 32t 34 35 36t 36t 38 39 40 41 42 43 44 45 46 47 48 49 50 51

North Carolina

0.096

South Carolina

0.096

Indiana

0.100

Colorado

0.105

Kentucky

0.106

New Mexico

0.107

California

0.108

North Dakota

0.108

Oklahoma

0.109

Arkansas

0.112

Dist. of Columbia

0.117

Tennessee

0.117

Arizona

0.121

South Dakota

0.122

Utah

0.123

Maryland

0.124

Texas

0.126

Kansas

0.135

Pennsylvania

0.143

Missouri

0.144

Rhode Island

0.148

Illinois

0.161

Florida

0.168

New York

0.180

Washington

0.182

Nebraska

0.189

18

Wireless

Source: Scott Mackey, “A Growing Burden: Taxes and Fees on Wireless Services,” State Tax Notes, February 14, 2011.

16


Business Tax Index 2012: Details

PIT Rate

ICG Rate

CIT Rate

CCG Rate

Added SCorp. Rate

Alabama

3.250

4.250

4.225

4.225

0.000

Alaska

0.000

0.000

9.400

4.500

0.000

Arizona

4.540

4.540

6.968

6.968

0.000

Arkansas

7.000

4.900

6.500

6.500

0.000

California

10.300

10.300

8.840

8.840

1.500

Colorado

4.630

4.630

4.630

4.630

0.000

Connecticut

6.700

6.700

9.000

9.000

0.000

Delaware Dist. of Columbia

6.750

6.750

8.700

8.700

0.000

8.950

8.950

9.975

9.975

9.975

Florida

0.000

0.000

5.500

5.500

0.000

State

Georgia

6.000

6.000

6.000

6.000

0.000

11.000

7.250

6.400

4.000

0.000

Idaho

7.800

7.800

7.600

7.600

0.000

Illinois

5.000

5.000

9.500

9.500

1.500

Indiana

3.400

3.400

8.500

8.500

0.000

Iowa

5.837

7.633

9.900

9.900

0.000

Kansas

6.450

6.450

7.000

7.000

0.000

Kentucky

6.000

6.000

6.000

6.000

0.750

Louisiana

3.900

5.100

5.200

5.200

5.200

Maine

8.500

8.500

8.930

8.930

0.000

Maryland

5.500

5.500

8.250

8.250

0.000

Massachusetts

5.250

5.300

8.000

8.000

4.500

Michigan

4.350

4.350

6.000

6.000

0.000

Minnesota

7.850

7.850

9.800

9.800

0.000

Mississippi

5.000

5.000

5.000

5.000

0.000

Missouri

6.000

6.000

5.156

5.156

0.000

Montana

6.900

6.900

6.750

6.750

0.000

Nebraska

6.840

6.840

7.810

7.810

0.000

Nevada New Hampshire

0.000

0.000

0.000

0.000

0.000

0.000

0.000

8.500

8.500

8.500

New Jersey

8.970

8.970

9.000

9.000

0.000

New Mexico

4.900

2.450

7.600

7.600

0.000

New York

8.820

8.820

8.307

8.307

0.000

North Carolina

7.750

7.750

6.900

6.900

0.000

North Dakota

3.990

3.990

5.150

5.150

0.000

Ohio

5.925

5.925

0.000

0.000

0.000

Hawaii

17


State Oklahoma

5.250

5.250

6.000

6.000

0.000

Oregon

9.900

9.900

7.600

7.600

0.000

Pennsylvania

3.070

3.070

9.990

9.990

0.000

Rhode Island

5.990

5.990

9.000

9.000

0.000

South Carolina

7.000

3.920

5.000

5.000

0.000

South Dakota

0.000

0.000

0.000

0.000

0.000

Tennessee

0.000

0.000

6.500

6.500

6.500

Texas

0.000

0.000

0.000

0.000

0.000

Utah

5.000

5.000

5.000

5.000

0.000

Vermont

8.950

8.950

8.500

8.500

0.000

Virginia

5.750

5.750

6.000

6.000

0.000

Washington

0.000

0.000

0.000

0.000

0.000

West Virginia

6.500

6.500

7.750

7.750

0.000

Wisconsin

7.750

3.100

7.900

7.900

0.000

Wyoming

0.000

0.000

0.000

0.000

0.000

18


Indiv. AMT

Corp. AMT

PIT Rate Index

Progressivity

Property Taxes

Alabama

0

0

1

1

1.53

Alaska

0

1

0

0

3.96

Arizona

0

0

1

1

3.28

Arkansas

0

0

0

1

1.71

California

1

1

0

1

3.53

Colorado

1

0

0

0

3.07

Connecticut

1

0

1

1

4.61

Delaware Dist. of Columbia

0

0

1

1

1.83

0

0

1

1

4.46

Florida

0

1

0

0

4.24

Georgia

0

0

1

1

3.18

Hawaii

0

0

1

1

2.40

Idaho

0

0

0

1

2.60

Illinois

0

0

0

0

4.33

Indiana

0

0

0

0

3.36

Iowa

1

1

0

1

3.51

Kansas

0

0

1

1

3.52

Kentucky

0

0

1

1

2.07

Louisiana

0

0

1

1

1.93

Maine

1

1

0

1

4.55

Maryland

0

0

1

1

2.52

Massachusetts

0

0

0

0

3.75

Michigan

0

0

0

0

4.34

Minnesota

1

1

0

1

3.25

Mississippi

0

0

1

1

2.64

Missouri

0

0

1

1

2.56

Montana

0

0

0

1

3.84

Nebraska

1

0

1

1

3.70

Nevada New Hampshire

0

0

0

0

3.59

0

0

0

0

5.75

New Jersey

0

1

1

1

5.36

New Mexico

0

0

1

1

1.86

New York

1

1

1

1

4.56

North Carolina

0

0

1

1

2.52

North Dakota

0

0

0

1

2.92

Ohio

0

0

0

1

3.23

Oklahoma

0

0

1

1

1.74

Oregon

0

0

1

1

3.28

Pennsylvania

0

0

0

0

3.11

State

19


Rhode Island

0

0

0

1

4.96

South Carolina

0

0

0

1

3.05

South Dakota

0

0

0

0

2.89

Tennessee

0

0

0

0

2.20

Texas

0

0

0

0

4.01

Utah

0

0

0

0

2.68

Vermont

0

0

0

1

5.29

Virginia

0

0

1

1

3.29

Washington

0

0

0

0

2.91

West Virginia

0

0

1

1

2.28

Wisconsin

1

0

0

1

4.41

Wyoming

0

0

0

0

5.19

20


Sales, Gross Rec & Excise

Death/Inheritance Taxes

Alabama

3.65

0

Alaska

1.72

0

Arizona

4.06

0

Arkansas

4.71

0

California

3.01

0

Colorado

2.89

0

Connecticut

2.59

3

Delaware Dist. of Columbia

1.08

3

3.29

3

Florida

4.15

0

Georgia

3.30

0

Hawaii

5.78

3

Idaho

2.86

0

Illinois

3.43

3

Indiana

3.80

3

Iowa

3.23

3

Kansas

3.29

0

Kentucky

3.31

3

Louisiana

5.31

0

Maine

2.97

3

Maryland

2.20

3

Massachusetts

1.74

3

Michigan

3.55

0

Minnesota

3.17

3

Mississippi

4.29

0

Missouri

2.96

0

Montana

1.03

0

Nebraska

3.05

3

Nevada New Hampshire

4.98

0

1.25

0

New Jersey

2.61

3

New Mexico

4.88

0

New York

3.56

3

North Carolina

2.97

3

North Dakota

3.48

0

Ohio

3.04

3

State

21

Unemp. Tax

1.38 3.62 0.94 2.28 0.79 1.25 1.93 1.77 0.85 1.13 1.08 4.70 6.02 2.45 2.27 5.87 1.48 2.33 1.23 2.37 2.21 3.14 2.24 5.70 2.17 3.13 4.49 1.99 3.41 2.17 3.41 2.97 1.59 3.38 7.18 2.08

Tax Limit.

Internet Access Tax

1

0

1

0

0

0

0

0

0

0

0

0

1

0

0

0

1

0

1

0

1

0

1

1

1

0

1

0

1

0

1

0

1

0

0

0

0

0

1

0

1

0

1

0

1

0

1

0

0

0

0

0

1

0

1

0

0

0

1

1

1

0

1

1

1

0

1

0

1

1

1

1


Oklahoma

3.56

0

Oregon

0.59

3

Pennsylvania

2.76

3

Rhode Island South Carolina

2.97

3

2.77

0

South Dakota

4.10

0

Tennessee

4.48

3

Texas

4.08

0

Utah

3.39

0

Vermont

3.10

3

Virginia

2.08

0

Washington

5.49

3

West Virginia

3.42

0

Wisconsin

2.90

0

Wyoming

5.40

0

22

3.75 4.02 1.96 4.36 3.51 3.22 2.30 1.72 6.77 3.12 1.12 4.56 2.48 3.08 5.41

0

0

0

0

1

0

1

0

1

0

0

1

1

0

1

1

1

0

1

0

1

0

0

1

1

0

1

1

1

0


AmazonTax

Gas Tax

Diesel Tax

Wireless Tax

Alabama

0

0.209

0.219

0.075

Alaska

0

0.080

0.080

0.068

Arizona

0

0.190

0.190

0.121

Arkansas

1

0.218

0.228

0.112

California

1

0.486

0.515

0.108

Colorado

0

0.220

0.205

0.105

Connecticut

1

0.486

0.462

0.071

Delaware Dist. of Columbia

0

0.230

0.220

0.063

0

0.235

0.235

0.117

Florida

0

0.350

0.305

0.168

Georgia

0

0.294

0.319

0.087

Hawaii

0

0.471

0.498

0.079

Idaho

0

0.250

0.250

0.022

Illinois

1

0.389

0.437

0.161

Indiana

0

0.389

0.490

0.100

Iowa

0

0.220

0.235

0.080

Kansas

0

0.250

0.270

0.135

Kentucky

0

0.278

0.195

0.106

Louisiana

0

0.200

0.200

0.064

Maine

0

0.315

0.327

0.073

Maryland

0

0.235

0.243

0.124

Massachusetts

0

0.235

0.235

0.079

Michigan

0

0.394

0.379

0.074

Minnesota

0

0.281

0.276

0.095

Mississippi

0

0.188

0.188

0.092

Missouri

0

0.173

0.173

0.144

Montana

0

0.278

0.286

0.061

Nebraska

0

0.276

0.270

0.189

Nevada New Hampshire

0

0.331

0.286

0.021

0

0.196

0.196

0.083

New Jersey

0

0.145

0.175

0.090

New Mexico

0

0.189

0.228

0.107

New York

1

0.490

0.495

0.180

North Carolina

1

0.392

0.392

0.096

North Dakota

0

0.230

0.230

0.108

Ohio

0

0.280

0.280

0.081

Oklahoma

0

0.170

0.140

0.109

State

23

BTI

26.009 25.430 33.796 36.156 52.219 27.260 49.550 41.094 63.007 23.339 35.258 49.576 44.802 46.697 38.212 53.411 38.844 38.038 35.535 52.469 41.035 44.227 32.676 55.075 31.572 33.452 39.280 45.776 12.614 37.142 54.730 36.779 54.132 46.053 35.426 26.838 33.970


Oregon

0

0.310

0.303

0.018

Pennsylvania

0

0.323

0.392

0.143

Rhode Island

1

0.330

0.330

0.148

South Carolina

0

0.168

0.168

0.096

South Dakota

0

0.240

0.240

0.122

Tennessee

0

0.214

0.184

0.117

Texas

0

0.200

0.200

0.126

Utah

0

0.245

0.245

0.123

Vermont

0

0.261

0.290

0.086

Virginia

0

0.198

0.201

0.066

Washington

0

0.375

0.375

0.182

West Virginia

0

0.334

0.321

0.061

Wisconsin

0

0.329

0.329

0.084

Wyoming

0

0.140

0.140

0.080

48.524 38.812 49.077 32.682 11.813 32.995 12.339 34.455 52.047 33.460 17.890 40.401 41.778 17.360

The Small Business & Entrepreneurship Council (SBE Council) is a nonpartisan, nonprofit advocacy, research and training organization dedicated to protecting small business and promoting entrepreneurship. For more information, please visit: www.sbecouncil.org.

2944 Hunter Mill Road • Suite 204 • Oakton, VA 22124 • 703-242-5840 • www.sbecouncil.org

Protecting small business, promoting entrepreneurship

24


Small Business & Entrepreneurship Council's Business Tax Index 2012