Wisconsin’s Business Tax Climate Remains Among Nation’s Worst

MacIver News Service | October 26, 2010  12:01 pm

[Madison, Wisc…] The State of Wisconsin has the 11th worst business tax climate in the nation according to the results of a just-released study.

Wisconsin ranked 40th in the 2011 State Business Tax Climate Index published today by the Tax Foundation.

The goal of the index is to focus lawmakers’ attention on the importance of good tax fundamentals: enacting low tax rates and granting as few deductions, exemptions and credits as possible. This “broad base, low rate” approach is the antithesis of most efforts by state economic development departments who specialize in designing “packages” of short-term tax abatements, exemptions, and other give-aways for prospective employers who have announced that they would consider relocating. Those packages routinely include such large state and local exemptions that resident businesses must pay higher taxes to make up for the lost revenue.

“The temptation is for state lawmakers to lure high-profile companies with packages of tax bonuses,” said Kail Padgitt, Ph.D., the author of the 2011 edition of the Index, “but that strategy often backfires if the company does not prosper.”

According to the Tax Foundation, the ideal tax system—whether at the local, state or federal level—is simple, transparent, stable, neutral to business activity, and pro-growth. A well-designed tax system, they argue, means individuals and businesses spend a minimum amount of resources to comply with the tax system and base their economic decisions primarily on the merits of the transactions without regard to tax implications. The Index seeks to measure this tax system competitiveness.

The Index examines 110 different factors to determine the overall business friendliness of a state.

According to the Tax Foundation, the States with the best business tax climates are:

1. South Dakota
2. Alaska
3. Wyoming
4. Nevada
5. Florida
6. Montana
7. New Hampshire
8. Delaware
9. Utah
10. Indiana

Wisconsin just narrowly escaped being in the bottom ten. The states with the ten worst business tax climates are:

41. North Carolina
42. Rhode Island
43. Minnesota
44. Maryland
45. Iowa
46. Ohio
47. Connecticut
48. New Jersey
49. California
50. New York

Last year Wisconsin ranked 42nd. Padgitt, who holds a Ph.D and Master’s degree in economics from George Mason University,  attributed the slight gain to Wisconsin’s decrease in property tax collections.  The Index ranks the states in five subcategories to determine their overall ranking. Wisconsin’s Property Tax index was 30th this year, their Unemployment Insurance Tax was 26th, Sales Tax 19th, Individual Income Tax 43rd, and Wisconsin’s Corporate Tax placed them 29th.

According to the Tax Foundation the worst state tax codes tend to have:

  • complex, multi-rate corporate and individual income taxes with above-average tax rates;
  • above-average sales tax rates that don’t exempt business-to-business purchases;
  • complex, high-rate unemployment tax systems; and
  • high property tax collections as a percentage of personal income.

“States do not enact tax changes in a vacuum,” said Scott Hodge, president of the Tax Foundation. “Every tax change will affect a state’s competitive position relative to its neighbors.”

Founded in 1937, the Tax Foundation is a nonpartisan educational organization that promotes the dissemination of basic information about government finance, which they say the foundation of sound policy in a free society.