Electric car maker Tesla (TSLA) – Get Tesla Inc Report was a high-profile company of several that recently moved its headquarters out of California to another state like Texas or Arizona.
While Elon Musk cited Covid-19 shutdown restrictions as a reason, companies are relocating out of California partly because of costs—including taxes that affect both their bottom line and the workers they hire, according to a report by the Hoover Institution.
When seeking the best place to locate a business or a company’s headquarters, costs are a factor, but other resources matter too. A WalletHub ranking of best states for starting a business also weighs the availability of human capital, higher education assets, local demographics and industry variety. Similarly, a survey by Thumbtack asked respondents about the ease of hiring, local regulations, licensing and availability of training and networking programs.
The Tax Foundation ranks all 50 states and the District of Columbia on business tax climate by scoring each on five components: corporate taxes, individual income taxes, sales taxes, property taxes and unemployment insurance taxes, though the five are not weighted equally.
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The amount of taxes isn’t the only factor in the ranking: how well each system is structured is another way for business leaders, policymakers and taxpayers to gauge business tax climate, according to the Tax Foundation, an independent tax policy research organization.
Some states do not even levy one or more of the five major taxes, and this is a common factor among most of those that rank highest. Several states have no state income tax, and three of those (Nevada, South Dakota, and Wyoming) have no corporate tax.
Wyoming and South Dakota, the top two states on this list, also levy neither a corporate income tax nor a gross receipts tax. Wyoming is also one of the states with well-structured sales taxes and modest excise tax rates, according to the Tax Foundation. (It’s also one of the states with the lowest tax on beer, at two cents a gallon.)
At the other end of the spectrum, New Jersey, ranked worst, has some of the highest property tax burdens in the country, the highest corporate income taxes and among the highest individual income taxes in the country. New Jersey also levies an inheritance tax, and maintains what the Tax Foundation calls some of the nation’s worst-structured individual income taxes.
Based on their 2022 State Business Tax Climate Index, these are the best and worst states for business taxes.
The States With the Best Business Tax Climate
1.Wyoming
Corporate tax rank: 1
Individual income tax rank: 1
Sales tax rank: 6
Property tax rank: 35
Unemployment insurance tax rank: 31
2. South Dakota
Corporate tax rank: 1
Individual income tax rank: 1
Sales tax rank: 34
Property tax rank: 18
Unemployment insurance tax rank: 38
3. Alaska
Corporate tax rank: 28
Individual income tax rank: 1
Sales tax rank: 5
Property tax rank: 24
Unemployment insurance tax rank: 43
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4. Florida
Corporate tax rank: 7
Individual income tax rank: 1
Sales tax rank: 21
Property tax rank: 12
Unemployment insurance tax rank: 2
5. Montana
Corporate tax rank: 22
Individual income tax rank: 24
Sales tax rank: 3
Property tax rank: 29
Unemployment insurance tax rank: 19
6. New Hampshire
Corporate tax rank: 41
Individual income tax rank: 9
Sales tax rank: 1
Property tax rank: 46
Unemployment insurance tax rank: 44
7. Nevada
Corporate tax rank: 25
Individual income tax rank: 5
Sales tax rank: 44
Property tax rank: 5
Unemployment insurance tax rank: 45
8. Tennessee
Corporate tax rank: 26
Individual income tax rank: 6
Sales tax rank: 46
Property tax rank: 33
Unemployment insurance tax rank: 20
9. Indiana
Corporate tax rank: 11
Individual income tax rank: 15
Sales tax rank: 19
Property tax rank: 1
Unemployment insurance tax rank: 25
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10. Utah
Corporate tax rank: 14
Individual income tax rank: 10
Sales tax rank: 22
Property tax rank: 7
Unemployment insurance tax rank: 17
11. North Carolina
Corporate tax rank: 4
Individual income tax rank: 16
Sales tax rank: 20
Property tax rank: 13
Unemployment insurance tax rank: 12
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12. Michigan
Corporate tax rank: 20
Individual income tax rank: 12
Sales tax rank: 10
Property tax rank: 21
Unemployment insurance tax rank: 7
13. Missouri
Corporate tax rank: 3
Individual income tax rank: 21
Sales tax rank: 25
Property tax rank: 8
Unemployment insurance tax rank: 4
14. Texas
Corporate tax rank: 47
Individual income tax rank: 7
Sales tax rank: 36
Property tax rank: 37
Unemployment insurance tax rank: 14
15. Washington
Corporate tax rank: 39
Individual income tax rank: 7
Sales tax rank: 49
Property tax rank: 20
Unemployment insurance tax rank: 24
The States With the Worst Business Tax Climate
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50. New Jersey
Corporate tax rank: 48
Individual income tax rank: 48
Sales tax rank: 43
Property tax rank: 44
Unemployment insurance tax rank: 32
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49. New York
Corporate tax rank: 24
Individual income tax rank: 50
Sales tax rank: 42
Property tax rank: 47
Unemployment insurance tax rank: 36
Photo: JJM Photography / Shutterstock
48. California
Corporate tax rank: 46
Individual income tax rank: 49
Sales tax rank: 47
Property tax rank: 14
Unemployment insurance tax rank: 23
48. District of Columbia
Corporate tax rank: 25
Individual income tax rank: 48
Sales tax rank: 37
Property tax rank: 50
Unemployment insurance tax rank: 39
(D.C.’s score and rank do not affect those of other states.)
