What do the states of South Dakota, Nevada, Wyoming, Washington and Texas have that other states don’t when it comes to how attractive they are to entrepreneurs?
Darn good tax systems, for one. That’s according to several surveys that have looked at the costs of state-tax systems on small business. The Small Business and Entrepreneurship Council’s 2009 Business Tax Index ranked those states among the best in this area, followed by Florida, Alaska, Colorado, Alabama and Ohio.(At the bottom of the list were New York, California, Maine, Minnesota, New Jersey and the District of Columbia, with the latter coming in last.)
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“We’re looking at the public policy side of things …We’re looking at where government is a plus or minus in the business decision-making process,” said Ray Keating, the SBE Council’s chief economist. “What we’re saying is, let’s keep the tax and regulatory cost at a low so they [entrepreneurs] can go out and raise capital and start a business and create jobs and get the economy going.”
The SBE’s rankings were based on 16 measures, including: top rates for personal income, individual capital gains, corporate income and corporate-capital gains taxes. Also considered were added income tax on S-Corporations, imposition of an alternative minimum tax on individuals and corporations, property taxes, consumption-based taxes, Internet access tax and gas tax.
Another recent study, which factors in things such as quality of life and the skilled workforce available, find the same states in the mix.
The Tax Foundation, which says the ideal tax system “is simple, transparent, stable, neutral to business activity and pro-growth,” released its own study last month, basing its rankings on major business taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes. Its top five states were South Dakota, Wyoming, Alaska, Nevada and Florida, with the worst five being Iowa, Ohio, California, New York and New Jersey.
So, let’s look at one state that repeatedly gets top grades in this area: Washington. It has no personal-income or capital-gains taxes, but what it does have that is actually not-so attractive to would-be entrepreneurs is a business and occupation (B&O) tax -- a tax on gross proceeds measured on the value of products, gross proceeds of sale, or gross income of the business. The seller is taxed whether he or she makes a profit or not. There are no deductions for labor, taxes, materials, or other business costs.
“Those people that are doing business in Washington state are not big fans of the state’s business and occupation tax,” said Gary Smith, who heads up the Independent Business Association of Washington. “Why do people say that Washington state is such a wonderful state to do business? It’s not generally because of our tax system … there are other elements in the state of Washington that are in such appeal that the B&O tax is worth it.”
Those elements, statistics show, include a highly-educated, productive workforce from which to hire. And major business anchors, such as Boeing and Microsoft, call The Evergreen State home, pumping a continuous lifeline into the local economy. Locals also speak favorably of the quality of life.