ON-Lion Letter
In October, the Tax Foundation in Washington, D.C., released the newest edition of its State Business Tax Climate Index, which ranks from 1 (best) to 50 (worst) the tax systems of the 50 states.  South Dakota's tax system is most welcoming to economic activity, while New York's tax code ranks 50th as the least-hospitable.

The goal of the index is to focus lawmakers' attention on the importance of good tax fundamentals: enacting low tax rates and granting as few deductions, exemptions and credits as possible.  This "broad-base, low-rate" approach is the antithesis of most efforts by state economic-development departments that specialize in designing "packages" of short-term tax abatements, exemptions, and other give-aways for prospective employers that have announced that they would consider relocating.  Those packages routinely include such large state and local exemptions that resident businesses must pay higher taxes to make up for the lost revenue.

The 10 states that had the best tax climates on the first day of the 2011 fiscal year (July 1, 2010) were South Dakota, Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware, Utah and Indiana.  The 10 states with the least hospitable business tax climates are, from 50th to 41st-best:  New York, California, New Jersey, Connecticut, Ohio, Iowa, Maryland, Minnesota, Rhode Island and North Carolina.

The worst state tax codes tend to have:  complex, multi-rate corporate and individual income taxes with above-average tax rates; above-average sales tax rates that don't exempt business-to-business purchases; complex, high-rate unemployment-tax systems; and high property-tax collections as a percentage of personal income.

The Lynde and Harry Bradley Foundation in Milwaukee supports the Tax Foundation.
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