Connecticut Ranks Poorly in National Tax Index

- Posted by Editor in Economic Development in Taxes

Connecticut has the 11th worst business tax climate in the country according to a new report from the nonprofit, nonpartisan Tax Foundation.

The organization's 2012 Business Tax Climate Index ranked Connecticut 40th, unchanged from 2011. The state joined its New England neighbors -- New Jersey (50th), New York (49th), Vermont (47th), and Rhode Island (46th) -- at the bottom of the rankings.

The Washington, D.C.-based organization used five categories to calculate the index: corporate tax, individual income tax, sales tax, unemployment insurance tax, and property tax. 

Connecticut's property taxes were the worst in the country. The foundation noted that "property taxes matter to businesses because the tax rate on commercial property is often higher than the tax on comparable residential property. Additionally, many localities and states often levy taxes on the personal property or equipment owned by a business."

The state ranked 25th for corporate taxes, 31st for individual income taxes, 30th for sales taxes, and 32nd for unemployment insurance taxes.

Wyoming, South Dakota, Nevada, Alaska, and Florida topped the index (see high resolution version of above illustration). New Hampshire ranked sixth, in stark contrast to most of the other New England states. (Massachusetts actually improved four places to 24th; Maine was 37th.)

"Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy," the foundation said in its report. "... A state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth.

"Every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its geographic region, and even globally. Ultimately it will affect the state’s national standing as a place to live and to do business."

The foundation's report called the habit of some state governments to supplant broadbased tax reforms with tax incentives and subsidies a "dangerous proposition."

"Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate," the report said.

"A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state’s competitiveness."

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