To jump-start their economies and create more jobs, states increasingly are trying to spur private sector business growth and investment. One way some political leaders are doing this is by reducing business taxes and government regulations. A number of states have taken steps in the last few years to reduce regulatory burdens on businesses, as well as reform tax credit and incentive programs to better reward private investment.
The reasoning behind this strategy is simple: Taxes and regulations affect the decisions and competitive positioning of large and small businesses alike. According to the Tax Foundation, a nonpartisan public policy organization in Washington, D.C., “the most competitive tax systems create the fewest economic distortions by enforcing the most simple, pro-growth tax systems characterized by broad bases and low rates.”
Recently, the U.S. Chamber of Commerce published a report called “Enterprising States 2011” that ranked states in a variety of performance metrics, including their tax and regulatory environments. Those environments were compared in five ways: overall state and local tax burdens, corporate taxes, small-business costs, state government budget gaps, and cost-of-living indices.
States that made the Chamber of Commerce’s top-ten list are not found on the East Coast or the West Coast and, with the exception of Texas, they’re not among the nation’s most populous places. Instead, they’re inland locales, ranging from Kentucky and Tennessee on the east end to Wyoming and Utah on the west end. Desirable coastal states don’t always need incentives to attract business investment and expansion. So states that offer lower taxes and regulations view those attributes not only as advantages but also as necessities in today’s competitive landscape for business expansion and job growth.
The importance of this for Urban Land Institute members relates both to their corporate entities and to real estate development. Locating in or doing business in a low-tax state can help generate higher profit margins, while operating with fewer regulatory and bureaucratic hurdles can reduce red tape in the real estate development process, whether for environmental reviews or incentive programs.
Below are the U.S. Chamber’s top ten states for low business taxes and regulations:
Tax and Regulatory Characteristics
Tennessee has the nation’s fourth-lowest state and local tax burden and a low cost of living. A hallmark of the state’s interaction with business is consistency of message and straightforward,
understandable taxes and regulations with no surprises.
South Dakota has the nation’s most favorable business tax climate, with no corporate income tax or business inventory tax. The state has an extensive array of tax and regulatory statutes aimed at lessening the tax burden on doing business.
Wyoming ranks in the top five among all states for business tax climate and for low state and local tax burden. Governor Matt Mead has focused on streamlining government functions, including repealing previous executive orders seen as unnecessary.
Business expansion, retention, and startups are encouraged by a very competitive tax environment. Alaska’s state government is also fiscally strong, with enough savings to insulate it from fluctuating energy prices.
The state has turned around its budget situation and has improved government efficiency. A very competitive business tax structure includes a flat 8.5 percent corporate income tax and no gross receipts tax or inventory tax.
The Lone Star State is a low-tax state that offers a low cost of living and has an enterprise-friendly climate that’s paying off with high job growth rates. Recent state initiatives include a business tax reform that raises the revenue exemption.
The state ranks in the top 20 in all five measured indicators—tax burden, corporate taxes, small-business environment, state budget gap, and cost of living. Missouri has recently enacted reforms in workers’ compensation and tort laws.
Kentucky has the nation’s lowest cost of living and recently passed legislation to create a “one-stop” website for business regulatory forms and interactions with state agencies. The state has also made international business trade a government priority.
The state’s booming energy industry has led to a sizable state budget surplus. North Dakota is also the only state to own its own bank, which provides a secondary market for real estate and business loans, and its profits help offset taxes.
Utah ranks in the top 17 in four of the five measured indicators (all except state and local tax burden). It has targeted development incentives on several business sectors, including aerospace, defense, life sciences, energy, and financial services.
Source: U.S. Chamber of Commerce.