Thinking of moving to a tax-friendly state or perhaps you have clients who want to know which states have the best corporate tax rates?
Wyoming leads the list with an overall rank of #1, most likely due to favorable corporate tax and individual taxes. Wyoming is followed by South Dakota and Alaska to round out the top 3. But it’s not all cold weather and northern locations, Florida holds tightly in rank #4.
How about the worst state for taxes? That place is held firmly by New Jersey and closely followed by New York (49) and California (48). If you’re familiar with the complexity of the state and local taxes in these three states, it is easy to understand why.
The nonprofit think tank, Tax Foundation measures each state and collects data to assess how well each state structures their tax system and has just released their index for 2018.
States are scored based on corporate taxes, individual taxes, sales taxes, property taxes, and unemployment insurance taxes as described below.
Corporate Taxes – This category measures the impact of states’ major taxes on businesses. In the case where a state has both corporate income tax and a gross receipts tax, that is considered.
Individual Taxes – The effective tax that is paid by individuals and families as well as any pass-through business income make up the individual income tax component of the index.
Sales Tax – The sales tax component is an important measurement evaluating the impact of sales and excise taxes as especially when based on costs to manufacture or sell products.
Property Taxes – Homeowners are familiar with property taxes, but in this component, Tax Foundation also measures the impacts of personal property tax, inventory, estate and inheritance tax as well as taxes on the wealthy.
Unemployment Insurance Tax – Not only does the foundation evaluate the impact of state unemployment tax attributes, but it also considers charging methods on businesses as well as schedules.
The chart below indicates the Top 10 tax-friendly states based on the aforementioned criteria. For the complete list of all 50 states by ranking, click here.
Dominique Molina is the President and Founder of the American Institute of Certified Tax Planners.With over 15 years of experience as a CPA, Molina has worked with many top business owners and investors using proactive tax planning to help them keep more of what they earn.