Tax competition is an unpleasant reality for state revenue and budget officials, but it is an effective restraint on state and local taxes.
So says the Tax Foundation in its annual report ranking the State Business Tax Climate in each of the 50 states. Many other factors – such as access to a well-trained workforce, transportation, raw materials, telecommunications and quality of life – determine where businesses move or stay. The foundation acknowledges that taxes are just one factor, but says “states with more competitive tax systems score well in the Index because they are best suited to generate economic growth.”
Wyoming tops ranking
Montana has ranked No. 7 for two years now (having been elevated from a preliminary No. 8 when the foundation revised its 2013 rankings.) Wyoming ranks No. 1.
Like other states in the Tax Foundation’s top 10 best business climate rankings, Montana and Wyoming don’t impose some of the tax types included in the ranking.
Wyoming and South Dakota (No. 2) have no individual or corporate income tax.
Montana is one of four states with no statewide sales tax. (Delaware, New Hampshire and Oregon are the others.) The impact of zero sales tax becomes clearer when we consider that statewide sales tax rates range from 2.9 percent in Colorado to 7.25 in California. Most states with statewide sales taxes allow local governments to add a local sales tax. States with the highest combined state and average local sales tax rates are Tennessee (9.43 percent), Arizona (9.12 percent), Louisiana (8.86 percent), and Washington (8.83 percent).
During every election season and every legislative session, some folks argue that taxes are too high or that tax policy is driving away businesses. Like other laws, tax policy needs to be reviewed and updated, but the Tax Foundation report throws cold water on the fiery rhetoric of those whose first priority is to make broad, deep Montana tax cuts at the expense of necessary public services.
Better than average
Not only does the Tax Foundation rank Montana as seventh best overall, it ranked our state in the better half of states in all five tax categories reviewed. Montana’s lowest ranking was 21st in unemployment insurance tax.
Montanans want to know the taxes we must pay are assessed fairly and that we aren’t getting taxed more than everybody else. The Tax Foundation’s report shows Montana’s tax system is competitive with other states. Compared with all other states, ours doesn’t have the most onerous taxes. In fact, if taxes were the only factor in business location decisions, Wyoming and Montana would be flooded with new firms relocating from North Dakota (No. 28), California (No. 48) and Minnesota (No. 47).
When Montana real estate owners get their annual property tax statements in a few weeks, they should keep in mind that the State Business Climate Index ranks our state 8th best for property taxes. Forty-two states were ranked as having worse property taxes.