No one likes to pay taxes, but it is understood that some taxation is necessary to pay for the services that we believe the government should provide. The individual states have many different methods and rates of collecting taxes, and states use taxes to compete for business and attract new residents.
The independent (but conservative leaning) Tax Foundation is out with the 17th edition its annual guide, the State Business Tax Climate Index. The report provides an objective look at how all the states compare on business taxation.
The Index analyzed more than 120 variables in five major areas of taxation—corporate taxes, individual income taxes, sales taxes, property taxes and unemployment insurance taxes. West Virginia scores better than you might think, and we’ll get to that in a minute.
“The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and the most effective at generating economic and employment growth,” according to the Index.
The report says the top states are, in order, Wyoming, South Dakota, Alaska, Florida, Montana, New Hampshire, Nevada, Oregon, Utah and Indiana. The Index says the biggest common denominator among the ten is the absence of a major tax. For example, Wyoming, Nevada and South Dakota have no corporate or individual income tax.
The ten lowest ranked states (from 41 to 50) are Louisiana, Iowa, Maryland, Vermont, Minnesota, Arkansas, Connecticut, California, New York and New Jersey. According to the Index, these states have “complex, nonneutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country.”
West Virginia scored slightly above average for business tax competitiveness. Its overall score is 23rd out of the 50 states. Notably, that’s a better score than our five neighboring states (Kentucky 24, Virginia 25, Pennsylvania 29, Ohio 38 and Maryland 43).
The Mountain State’s best score of the five categories is the corporate tax rate. The rate of 6.5 percent ranks West Virginia 15th among the states. That’s also a better ranking than any of the five contiguous states.
The state’s worst rating was 29th in the category of unemployment insurance tax. But that’s still a better ranking than Kentucky at 49th, Pennsylvania at 42nd and Maryland at 33rd.
The rankings are important because, even though the economy is now global, most of the competition for jobs is between the states. As the Index reports, “They (the states) need to be more concerned with companies moving from Detroit, Michigan, to Dayton, Ohio, than from Detroit to New Delhi, India.”
“That means that state lawmakers must be aware of how their states’ business climates match up against their immediate neighbors and to other regional competitor states.”
The anti-competitive property tax on inventory, machinery and equipment remains a significant challenge to businesses operating profitably or relocating to West Virginia. That may change next year if the Justice administration follows through with plans for a constitutional amendment to phase that out.
But beyond that, at least according to the Tax Foundation, the state’s business tax rating is competitive, especially with our surrounding states.