Montana ranks sixth in the Tax Foundation’s State Business Tax Climate Index. Its neighbors, Wyoming and South Dakota rank first and second, respectively.
The Index, developed by the Tax Foundation, is designed to show how well states structure their tax systems, and provides a roadmap for improvement.
Montana ranked 12th in corporate taxes, 21st in individual taxes, third in sales taxes, ninth in property taxes, and 20th in unemployment insurance taxes.
Other top ranking states were Alaska, Florida, and Nevada.
New Jersey ranked last, out done by New York in 49th and California in 48th, followed by Vermont, and the District of Columbia.
The absence of a major tax is a common factor among many of the top 10 states, says the report. 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. 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.
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.
The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance tax and an estate tax, and maintains some of the worst-structured individual income taxes in the country.
When making changes in their tax system, said the Tax Foundation, state lawmakers need to remember two rules:
1. Taxes matter to business. Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), or shareholders (through lower dividends or share value), or some combination of the above. Thus, a state with lower tax costs will be more attractive to business investment and more likely to experience economic growth.
2. States do not enact tax changes (increases or cuts) in a vacuum. Every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its region, and even globally. Ultimately, it will affect the state’s national standing as a place to live and to do business. Entrepreneurial states can take advantage of the tax increases of their neighbors to lure businesses out of high-tax states.