The two tax studies we use in calculating the Employ score in our Opportunity scorecard have each been updated. The Tax Foundation has released its 2016 State Business Tax Climate Index (map below).
Washington comes in at No. 12. The Tax Foundation notes the characteristics 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, South Dakota, and Texas have no corporate or individual income tax (though Nevada and Texas both impose gross receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax.
This does not mean, however, that a state cannot rank in the top ten while still levying all the major taxes. Indiana and Utah, for example, levy all of the major tax types, but do so with low rates on broad bases.
With respect to individual income taxes, note this methodological comment from the report.
Two notable exceptions to this rule [that states without a tax get a perfect 10] exist: the first is in Washington and Texas, which do not have taxes on wage income but do apply their gross receipts taxes to limited liability corporations (LLCs) and S corporations. Because these entities are generally taxed through the individual code, these two states do not score perfectly in the individual income tax component.
The other updated report is from the Council on State Taxation (COST), which recently released Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2014.
COST finds that Washington business taxes account for 58 percent of state and local tax collections here. The national average is 45.0 percent.
Business taxes in Washington amount to 5.4 percent of private sector gross state product amount. The national average is 4.6 percent of GSP.
There’s a lot of good information in both reports to guide legislators and others in evaluating our state’s tax policy.