New report ranks tax climate for Illinois businesses

Kevin Hoffman

REBOOT STAFF

Oct 30, 2014

Illinois’ business tax climate is getting worse, much worse.

The Tax Foundation’s State Business Tax Climate Index for 2015 ranks all 50 states including Washington D.C.. While Illinois managed to avoid the bottom of the barrel, its business tax climate is quickly spiraling down the rankings.

Since 2011, Illinois has gone from 17th to 31st in overall business tax climate. Unsurprisingly, this decline seemingly coincided with the temporary tax hike for both individual and corporate income taxes. However, the Tax Foundation notes it did not take into account the phased rollback beginning January 2015. Unless the General Assembly extends or makes the tax increases permanent following the election, corporate tax rates will fall from 9.5 percent to 7.75 percent, and individual to 3.75 percent from 5 percent.

Along with personal and corporate income tax rates, the Tax Foundation ranked sales, unemployment insurance and property taxes to determine the overall ranking. Here’s how Illinois ranked in each category.

Overall Rank	Corporate Tax Rank	Individual Income Tax Rank	Sales Tax Rank	Unemployment Insurance Tax Rank	Property Tax Rank
31	47	11	34	38	44

As the report notes, states’ main competition in luring businesses comes from other states, especially next-door neighbors. Indiana, which ranks 8th overall, is a prime example with its “stillinnoyed” marketing campaign to attract weary Illinois businesses over the border.

From the Tax Foundation:

Tax competition is an unpleasant reality for state revenue and budget officials, but it is an effective restraint on state and local taxes. It also helps to more efficiently allocate resources because businesses can locate in the states where they receive the services they need at the lowest cost. When a state imposes higher taxes than a neighboring state, businesses will cross the border to some extent. Therefore, states with more competitive tax systems score well in the Index, because they are best suited to generate economic growth.

It’s important for state lawmakers to be conscious of tax competition among their neighbors, but it’s also much easier to offer generous tax incentives and subsidies instead of overhauling an entire tax code. Some states like South Dakota, Wyoming and Nevada have no individual or corporate income tax; New Hampshire and Montana have no sales tax.

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Infographic: A nationwide overview of states’ income taxes

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While the exemption of particular tax types might help in these rankings, states like Indiana and Utah, which are both among the top 10, impose all “major tax types,” but do so at low rates on broad bases, according to the report.

 Ten best states for business tax climate

1. Wyoming
2. South Dakota
3. Nevada
4. Alaska
5. Florida
6. Montana
7. New Hampshire
8. Indiana
9. Utah
10. Texas

Ten worst states for business tax climate

1. New Jersey
2. New York
3. California
4. Minnesota
5. Vermont
6. Rhode Island
7. Ohio
8. Wisconsin
9. Connecticut
10. Iowa

More on the Tax Foundation’s methodology:

The Index deals with such questions by comparing the states on over 100 different variables in the five important areas of taxation (corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes, and property taxes) and then adding the results up to a final, overall ranking. This approach rewards states on particularly strong aspects of their tax systems (or penalizes them on particularly weak aspects) while also measuring the general competitiveness of their overall tax systems. The result is a score that can be compared to other states’ scores.

View the full report by clicking on the link below:

Tax Foundation State Business Tax Climate Index 2015

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Kevin Hoffman is a Reboot Illinois staff writer who graduated from the University of Iowa with a degree in journalism, political science and international studies. He believes keeping citizens informed and politicians in check is the best way to improve Illinois and bring about common sense reform.  Follow us on Facebook.