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Wyoming, South Dakota rank among top business friendly states

If you are looking to start a new business, Wyoming might be a place to consider moving. According to the Tax Foundation’s annual State Business Tax Climate report, Wyoming ranks first among the fifty states for most business-friendly tax code.

Behind Wyoming are South Dakota, Nevada, Alaska, and Florida. Washington, New Hampshire, Montana, Texas and Utah rank in the top ten.

“The modern market is characterized by mobile capital and labor, with all types of business, small and large, tending to locate where they have the greatest competitive advantage,” the Tax Foundation writes. “The evidence shows that states with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth.”

The top three states, Wyoming, South Dakota and Nevada, have no corporate or individual income tax. Many other of the top states have no state sales tax or income tax.

“The lesson is simple,” says the Tax Foundation, “a state that raises sufficient revenue without one of the major taxes will, all things being equal, have an advantage over those states that levy every tax in the state tax collector’s arsenal.”

The study shows that Maine made the biggest improvement from last year, as a result of their repeal of the alternative minimum tax and a change in treatment of net operating losses.

Maine leapfrogged from a ranking of 37th to 30th overall.

Michigan also made favorable tax improvements replacing their “Michigan Business Tax” with a 6 percent flat corporate income tax, largely free of special tax preferences, vaulting them from 18th to 12th best tax index. Their corporate tax rank went from 49th to 7th best.

Business tax code and regulation are a vital issue for small businesses. In September, The National Federation of Independent Businesses (NFIB) surveyed small business owners and found that taxation is the number one problem for small business, followed by government regulation and red tape.

These factors, combined with uncertainty and poor sales, are making it difficult for small businesses to rebound during this fragile recovery.

“Taxes and regulations are high on the list of concerns of business owners and these are issues that politicians will be addressing as the election approaches,” writes the NFIB.

“Politicians have little understanding of the costs their actions impose on the private sector. ‘Frequent changes in the tax code’ should not consistently rank in the top 15 problems that owners face.”

President Obama has touted tax incentives and access to loans for small businesses on the campaign trail, though reports continue to show pessimistic hiring outlooks and  uncertainty that capital investments risky.

The Tax Foundation suggested two rules for state lawmakers to bear in mind when legislating: Taxes matter to business, and states do not enact tax changes in a vacuum. Companies can easily move across state lines in response to shifting tax burdens.

“Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate,” the study says.

“A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state’s competitiveness.”

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