N.H. ranks high on biz tax study; Maine not so much

Maine’s high, progressive personal income tax and a higher corporate income tax are two reasons the state fared poorly in an independent study on business climate conducted by a national research group that has been monitoring government fiscal policy for more than 75 years.

Scott Drenkard, one of two major authors of the report, told The Lebanon Voice today that unfavorable business taxes aren’t the only reason corporations don’t spend as much money in Maine as other states, but they do figure prominently.

Maine ranked 29th out of all 50 states, while neighboring New Hampshire ranked 8th.

Drenkard said New Hampshire’s popularity is largely because it has no sales tax and no income tax, while Maine’s progressive income tax is extremely burdensome, especially on high-income earners.

“New Hampshire does without one of the major taxes, the sales tax, and Maine levies all the major taxes and has high rates and narrow bases on all of them,” said Drenkard, who co-authored the “2014 State Business Tax Climate Index”  with Joseph Henchman.

Drenkard said New Hampshire, unlike Maine, utilizes broad-based taxes in an equitable fashion.

He said to put a dent in Maine’s low ranking, the state should consider lowering or eliminating the corporate income tax.

“Maine’s high corporate income tax of 8.93 percent brings in only 3 percent of state and local revenue. It’s a high rate with a narrow base,” Drenkard said. He indicated the high corporate income tax produces little in the way of tax revenue but is a “turnoff” for big business.

New Hampshire’s corporate income tax at 8.5 percent is relatively high, too, he added, “but New Hampshire has many other (tax) positives” as compared to Maine.

Maine ranks 45th in corporate taxes, while New Hampshire ranks 48th.

Several states have moved in the rankings since last year, with Texas dropping out of the top ten for the first time, landing at #11, and Virginia and Kentucky both falling three places to #26 and #27, respectively. On the positive side, Arizona climbed five ranks to #22 and Kansas shot up six spots to #20. Several other states also saw smaller changes.

“The states that lost ground this year usually did so because they changed policy in a way that makes the tax code more complex, burdensome, or economically harmful,” said Drenkard. “By contrast, the states that improved did so because they are moving closer to a tax code that collects revenue without unnecessarily distorting business decisions. Their tax codes became more neutral.”

The State Business Tax Climate Index, now in its 10th edition, collects data on over a hundred tax provisions for each state and synthesizes them into a single, easy-to-use score. The states are then compared against each other, so that each state’s ranking is relative to actual policies in place in other states around the country. A state’s ranking can rise or fall significantly based not just on its own actions, but on the changes or reforms made by other states.

The top ten states in 2014 are Wyoming (#1), South Dakota (#2), Nevada (#3), Alaska (#4), Florida (#5), Washington (#6), Montana (#7), New Hampshire (#8), Utah (#9), and Indiana (#10).

The 10 lowest ranked states in 2014 are Maryland (#41), Connecticut (#42), Wisconsin (#43), North Carolina (#44), Vermont (#45), Rhode Island (#46), Minnesota (#47), California (#48), New Jersey (#49), and New York (#50).

Vermont overall ranking, meanwhile, is near the bottom at 45th. Massachusetts is 25th.

 “The goal of the State Business Tax Climate Index is to start a conversation with policymakers about how their states fare against the rest of the country,” said Drenkard. “With this report, we’re asking: ‘how well is your tax code structured? Are businesses in your state spending too much time complying with onerous tax provisions? Are you double taxing things you shouldn’t?’”

Drenkard said tax policy is just one of many factors that businesses consider when choosing a location to set up shop. Permitting and labor force are also major factors, he added, but stressed tax policy is something state governments have the power to change quickly.

The report was released by the The Tax Foundation, a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937.