Ohio, 46th Worst Business Tax Climate : The Tax Foundation’s 2011 State Index

The Tax Foundation released the newest edition of the State Business Tax Climate Index, which ranks from 1 (best) to 50 (worst) the tax systems of the 50 states. South Dakota’s tax system is most welcoming to economic activity while New York’s tax code ranks 50th as the least hospitable. Ohio almost caught up with New York being ranked as 46th least tax friendly state.

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. As a result, businesses often move to other regions or states to remain competitive.

States with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth. As we will see, Ohio need more than government generated jobs. Ohio needs a serious tax code revision.

The index ranked states based on five component tax indexes:

• The Corporate Tax Index
• The Individual Income Tax Index
• The Sales Tax Index
• The Unemployment Tax Index
• The Property Tax Index

The Corporate Tax Index assesses both corporate income taxes and/or gross receipts taxes. Ohio taxes business on the latter gross receipts.

The Individual Income Tax Index measures the effect on small businesses and entrepreneurs, on labor costs, and, depending on the type of business, on consumer spending. One reason Ohio ranks among the worst states is it arranges the top income brackets in the middle range of income. Ohio is among the states with the highest marriage tax penalties. Ohio’s local income tax rates also are the third highest in the nation.

Sales Tax Index measures the rates and effects of taxes both on business. A form of double taxation exists when a business pays sales tax that increases the cost of goods and services and when the consumer pays sales tax on the same goods or services. The two components of the index consist of the tax rate and tax base, which is the range and types of goods and services taxed.

The Unemployment Insurance Tax Index measures the effects state and federal rate structures and related policies and how potentially damaging to business they may be. Ohio was ranked as among the states with the best unemployment insurance structures.

Finally, the Property Tax Index is comprised of taxes levied on the wealth of individuals and businesses. These include taxes on real and personal property, net worth, and the transfer of assets. Some studies property taxes are a significant factor of business location decisions.

So how did Ohio rank on each of these indexes?

Tax Indexes 2011 2010 2009 2008 2007 2006
Corporate Tax 39 38 33 33 39 47
Income Tax 44 46 47 47 49 50
Sales Tax 35 37 39 39 38 43
Unemployment Tax 11 10 15 15 11 48
Property Tax 39 38 33 33 39 13
Overall Rank 46 47 48 48 47 47

 

Anyone for lower sales, income and property taxes? If you are, you must also be for more efficient government operations and fewer unnecessary government programs.

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