2010 State Business Tax Climate Index Results

The Tax Foundation, a nonpartisan tax research group based in Washington, D.C., recently released its 2010 State Business Tax Climate Index results. During the past year (FY 2009 to 2010), Indiana has moved up two spots from 14th to 12th place. This is certainly good news for the state and positions Indiana well for economic development opportunities.

The Index measures the competitiveness of the 50 states’ tax systems and ranks them based on the taxes that most effect businesses and business investment: corporate income, individual income, sales, property and unemployment insurance taxes. The Index places 112 variables into these five component indexes that each measures a different sector of state’s business tax climate.

Please find below the list of the top 10 states in the U.S. in the 2010 Index.

1. South Dakota
2. Wyoming
3. Alaska
4. Nevada
5. Florida
6. Montana
7. New Hampshire
8. Delaware
9. Washington
10. Utah.

Please find below the 10 lowest ranking states in the survey.

41. Vermont
42. Wisconsin
43. Minnesota
44. Rhode Island
45. Maryland
46. Iowa
47. Ohio
48. California
49. New York
50. New Jersey.

In comparison to neighboring Midwestern states, Indiana is strongly positioned. Below, please find the rankings for Indiana and its surrounding states.

FY2010 FY2009

Illinois #30 #23
Michigan #17 #21
Ohio #47 #47
Kentucky #20 #34
Indiana #12 #14

Indiana’s individual, unemployment and property tax rankings were 11th and 12th, while sales and corporate tax ratings were 20th and 21st.

And while Kentucky ranked 20th overall, and improved the most – up 14 spots from 34th in 2009, many other states enacted policy changes that proved economically damaging, thus lowering their overall rankings. For example, Kentucky’s Corporate Income Tax indexed at 42, Individual Income Tax at 32 and Unemployment Insurance Tax at 36. Similarly, Michigan at 17 showed a Corporate Income Tax Index of 48, Unemployment Insurance Tax at 45 and Property Tax at 33. Of all of the surrounding states, Ohio fared the worst with rankings between 37 and 49 in every tax category except Unemployment Insurance Tax.

The reports states that “many states offer lucrative tax incentives and subsidies under the banner of job creation and economic development, but the truth is, if a state cannot attract employers without these types of packages it is often because tax laws have created an unfavorable environment.” This could not be more true. When we work with our clients on new facility, expansion or consolidation projects, we tell them that economic development incentives are an important consideration in the site selection process, no dollar amount of economic development incentives can overcome a poor business climate in a state.

Indiana needs to closely monitor how its tax structure impacts different industry sectors in order to continue to offer one of the best business climates in the country for companies to grow their businesses. Indiana can examine the way it taxes property, sales and income to determine if there is a better way to tax individuals and businesses to support public safety, schools and infrastructure while encouraging investment by maintaining a broad tax base and low rates. It is vital that the state balance the needs of citizens and businesses to continue to make our state a healthy and viable location for companies looking to expand or relocate.

Source: Inside Indiana Business Online and  Written by: Larry Gigerich - Managing Director, Ginovus