Once Again, Bring Me the Usual Suspects: 2014 Small Business Tax Index

The Small Business & Entrepreneurship Council recently released their “Small Business Tax Index 2014.” You may remember that last October I wrote about their “Small Business Policy Index 2013.” Congratulations are in order for my home state, the Silver State, for leading the way. Here are the top ten states:

1. Nevada (9.677)
2. South Dakota
3. Texas
4. Wyoming
5. Washington
6. Florida
7. Alabama
8. Ohio
9. Colorado
10. Alaska

Bringing up the rear are these ten states:

41. Connecticut
42. Oregon
43. Vermont
44. Maine
45. New York
46. Iowa
47. Hawaii
48. New Jersey
49. Minnesota
50. California (82.695)

The numbers in parentheses are the total score for all factors. Why is California so far behind Nevada?
– Nevada has no personal income tax; California has the highest personal income tax in the country.

A high personal income tax rate raises the costs of working, saving, investing, and risk taking. Personal income tax rates vary among states, therefore affecting crucial economic decisions and activities. In fact, the personal income tax influences business far more than generally assumed because more than 92 percent of businesses file taxes as individuals (e.g., sole proprietorship, partnerships and S-Corps.), and therefore pay personal income taxes rather than corporate income taxes.

– Nevada has no capital gains tax; California has the highest capital gains tax rate in the country. “One of the biggest obstacles that start-ups or expanding businesses face is access to capital. State capital gains taxes, therefore, impact the economy by directly affecting the rate of return on investment and entrepreneurship.”

– Nevada doesn’t tax dividends and interest; California has the top rate on these in the country. “Quite simply, higher tax rates on dividends and interest mean reduced resources and incentives for saving and investment, which in turn, works against entrepreneurship, economic growth and job creation.”

-Nevada doesn’t have a corporate income tax; California does (they rank 41st in this category). The same rankings apply for corporate capital gains taxes.

– California gets a negative for imposing a corporate level tax on S-Corporation, an individual AMT, a corporate AMT, and for having a progressive income tax (Nevada has none of these). California does index tax brackets, so it doesn’t lose a point here.

– On property tax, Nevada ranks 21st and California ranks 28th (they are fairly similar).

– In one category, California ranks significantly above Nevada: sales and gross receipts/excise taxes. California ranks 26th and Nevada ranks 48th.

– California ranks first in one category: unemployment taxes while Nevada is just behind in 6th.

In any case, California ends up at the bottom. Given its ranking at the bottom of the policy index, that’s a daily double that should drive California’s political leaders to make changes…but won’t.

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