Washington comes in at No. 17 in the 2017 “State Business Tax Climate Index” published by the Tax Foundation.
The 10 best states in this year’s Index are:
2. South Dakota
7. New Hampshire
The Tax Foundation identifies a characteristic shared by most of the top 10 states.
The absence of a major tax is a common factor among many of the top ten states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. Wyoming, Nevada, and South Dakota have no corporate or individual income tax (though Nevada imposes gross receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire, Montana, and Oregon have no sales tax.
Last year, Washington ranked No. 18 according to the history presented in Table 2, so the state has improved slightly in the rankings. We wrote about the annual study last year, but if you go to the link you’ll find Washington ranked No. 12. We called the Tax Foundation to verify that they revise prior years’ rankings to reflect methodological improvements. Here’s Washington’s rankings history: 2014 – 16; 2015 – 17; 2016 – 18; 2017-17.
The press release for Washington breaks down the the state’s ranking on major components of the tax structure:
Corporate tax structure: 48
Individual income tax: 6
Sales tax: 49
Property tax: 27
Unemployment insurance: 18
As usual, we’ll provide the caution that opinions will vary regarding the weightings, measures, etc., of any index. But we’ll add that the Tax Foundation does good, objective analysis and that the information provided here will be useful to policymakers and others interested in understanding state tax systems and their effects on business.
The Tax Foundation describes why this is important:
The modern market is characterized by mobile capital and labor, with all types of businesses, small and large, tending to locate where they have the greatest competitive advantage. The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth. It is true that taxes are but one factor in business decision making. Other concerns also matter—such as access to raw materials or infrastructure or a skilled labor pool—but a simple, sensible tax system can positively impact business operations with regard to these resources. Furthermore, unlike changes to a state’s health care, transportation, or education systems, which can take decades to implement, changes to the tax code can quickly improve a state’s business climate.
Changes can also quickly damage the business climate. Oregon may have reason to worry about that No. 10 ranking.