Incentives Watch: Tax Credit Packages Sign of “Woeful Business Tax Climate,” Tax Foundation Report Says

The Tax Foundation recently released its 2014 State Business Tax Climate Index, which ranks all 50 states based on their tax systems.  Certain tax credit deals offered by states appear to have a negative impact on their ranking in the Index.

The top 10 best states, according to the Index, are as follows:  Wyoming, South Dakota, Nevada, Alaska, Florida, Washington, Montana, New Hampshire, Utah, and Indiana.

All 50 states are compared to each other based on different variables in five key tax areas, namely business taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes.

The Index report points out that states continue to use various tax credits and incentives to lure businesses to their states.  However, it doesn’t always work out the way the states intend when initially offering the incentives. 

For example, North Carolina offered the computer manufacturer, Dell, $240 million in tax incentives, but the company shut down its plant after operating for four years in the state, notes the report.

North Carolina’s tax incentive packages may have contributed to its low ranking in the Index, as it is ranked as one of the 10 worst states (#44 overall).

“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. 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,” the report argues.

Only time will tell if states heed the report’s advice and start enacting meaningful tax reform measures.

For more information about the various state tax credits and incentives, check out Bloomberg BNA’s Credits and Incentives Portfolios.

In other developments . . .

The North Carolina Department of Revenue issued a notice informing taxpayers that they may continue to take installments and carryforwards after various tax credits expire, provided they continue to meet certain eligibility requirements, according to a Bloomberg BNA Weekly State Tax Reportarticle

By: Kathleen Caggiano

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