State Tax Comparisons Leave Out Part of the Picture

Click to enlarge / The Tax Foundation

Idaho ranks 21st among states with a business friendly tax climate.

The Tax Foundation’s annual index of state business climate came out this week.  It ranks Idaho’s business tax climate 21st, up a spot from last year.  All of Idaho’s neighboring states ranked higher.  Montana ranks 8th, Wyoming ranks 1st, Nevada ranks 3rd and Utah ranks 10th.  So we started asking, what does this index mean?

Idaho Association of Commerce and Industry president Alex LaBeau says states tend to highlight these rankings when they’re ranked high and downplay them when they rank low.  “Every ranking is somewhat subjective to the variables that the study considers,” LaBeau says.  “Without further understanding of those variables the ranking lacks any real value.”

The study uses a formula to compare property, income, corporate, sales and unemployment insurance taxes in every state.  Each tax is weighted differently.  Many of the states in the top ten are missing one of the major tax categories.  For instance, Wyoming, Nevada and South Dakota have no corporate or individual income tax.  New Hampshire and Montana have no sales tax.

If a business person were deciding where to open a new store, based on this index alone, one would assume they’d choose Wyoming over Idaho.  Director of the Idaho Center for Fiscal Policy Mike Ferguson says these kinds of rankings don’t show the whole picture.  “Taxes can matter at the extreme end of the scale – part of the problem is when people focus only on the tax side they leave out the other side of the coin – what taxes are used for, like education and public services, and they matter a lot.”

He says if the Foundation looked at the balance of Idaho’s tax structure (the tax rates spread across income, sales and property taxes), the state would probably rank higher.  Considered on balance, Ferguson says Idaho ranks pretty highly compared to neighboring states. 

How much do state tax rankings matter to you?