Tax Foundation ranks Wisconsin 32nd for business tax climate

Report penalizes states for use of tax credits

A new report from the Tax Foundation ranks Wisconsin 32nd in the nation for state business tax climate, an improvement of three spots from last year but also a return to the state’s ranking in 2016.

Jared Walczak, the report’s lead author, said Wisconsin’s improvement was primarily the result of changes by other states. He added that over the last five to ten years the state has seen a reduced reliance on property taxes and “a modest improvement” in its ranking.

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The report from the Washington D.C.-based nonprofit seeks to measure how effectively a state raises revenue using 100 different variables. It evaluates a state’s taxation in five major areas based on each area’s variability compared to the national average. The index gives a 30.1 percent weight to individual income tax, 25.3 percent to sales tax, 19.5 percent to corporate tax, 15.4 percent to property tax and 9.8 percent to unemployment insurance tax.

Wisconsin performed best on the sales tax portion of the index, ranking 8th in the country. The index rewards states that allow exclusions for business inputs and have low general rates and a broad base. The report included Wisconsin among the state’s as having “well-structured sales taxes and modest excise tax rates.”

The property tax component takes into account property tax rates using U.S. Census data and each state’s tax base. The rates component includes per capita collections, property tax collections as a percent of personal income and capital stock taxes. The base element includes variables on whether a state levies inheritance, estate, gift, inventory, or intangible property taxes. Wisconsin ranks 21st on the property tax measure.

Wisconsin ranks 35th in the country on the corporate tax rate component. The index penalizes states that have high or complex rate systems and those that rely on business tax credits.

The $3 billion tax incentive package Wisconsin officials agreed to with Foxconn Technology Group is not specifically accounted for in the index, Walczak said.

“That sort of deal is typical of the sort of policy the index does penalize,” he added.

Wisconsin ranks 39th on individual income tax, in the largest component of the index. States with no income tax generally receive a perfect score while the report also rewards those with flat, low-tax systems with few deductions or exemptions. Complex, multi-rate systems typically score lower.

The smallest component of the index is unemployment insurance tax, where Wisconsin ranks 41st.

The top ranked business tax states overall include Wyoming, Alaska, South Dakota, Montana and Florida. The worst are Arkansas, Connecticut, New York, California and New Jersey.

Among neighboring states, only Michigan outranks Wisconsin at 13th. Illinois is 36th, Minnesota is 43rd and Iowa is 45th.

Iowa’s ranking is expected to improve in the coming years following the passage of a tax reform package that reduces individual and corporate income rates. Walczak noted the changes will be phased in over a number of years.

A new report from the Tax Foundation ranks Wisconsin 32nd in the nation for state business tax climate, an improvement of three spots from last year but also a return to the state’s ranking in 2016.

Jared Walczak, the report’s lead author, said Wisconsin’s improvement was primarily the result of changes by other states. He added that over the last five to ten years the state has seen a reduced reliance on property taxes and “a modest improvement” in its ranking.

Money

The report from the Washington D.C.-based nonprofit seeks to measure how effectively a state raises revenue using 100 different variables. It evaluates a state’s taxation in five major areas based on each area’s variability compared to the national average. The index gives a 30.1 percent weight to individual income tax, 25.3 percent to sales tax, 19.5 percent to corporate tax, 15.4 percent to property tax and 9.8 percent to unemployment insurance tax.

Wisconsin performed best on the sales tax portion of the index, ranking 8th in the country. The index rewards states that allow exclusions for business inputs and have low general rates and a broad base. The report included Wisconsin among the state’s as having “well-structured sales taxes and modest excise tax rates.”

The property tax component takes into account property tax rates using U.S. Census data and each state’s tax base. The rates component includes per capita collections, property tax collections as a percent of personal income and capital stock taxes. The base element includes variables on whether a state levies inheritance, estate, gift, inventory, or intangible property taxes. Wisconsin ranks 21st on the property tax measure.

Wisconsin ranks 35th in the country on the corporate tax rate component. The index penalizes states that have high or complex rate systems and those that rely on business tax credits.

The $3 billion tax incentive package Wisconsin officials agreed to with Foxconn Technology Group is not specifically accounted for in the index, Walczak said.

“That sort of deal is typical of the sort of policy the index does penalize,” he added.

Wisconsin ranks 39th on individual income tax, in the largest component of the index. States with no income tax generally receive a perfect score while the report also rewards those with flat, low-tax systems with few deductions or exemptions. Complex, multi-rate systems typically score lower.

The smallest component of the index is unemployment insurance tax, where Wisconsin ranks 41st.

The top ranked business tax states overall include Wyoming, Alaska, South Dakota, Montana and Florida. The worst are Arkansas, Connecticut, New York, California and New Jersey.

Among neighboring states, only Michigan outranks Wisconsin at 13th. Illinois is 36th, Minnesota is 43rd and Iowa is 45th.

Iowa’s ranking is expected to improve in the coming years following the passage of a tax reform package that reduces individual and corporate income rates. Walczak noted the changes will be phased in over a number of years.

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