The Tax Foundation's 2014 State Business Tax Climate Index names New Mexico, Idaho, Utah, North Dakota, and Arizona as the best states in the nation for property taxes. The worst states are Connecticut, New Jersey, Vermont, Massachusetts, and Rhode Island. (See map below.)
The 2014 Index takes a broad look at five major categories of taxes: property tax, sales tax, unemployment tax, corporate income tax, and individual income tax.
Property Taxes Matter
It's no secret that property taxes are a major operating expense. Businesses paid $619 billion in state and local taxes in fiscal year 2010, of which 40% ($250 billion) was for property taxes.
As the authors note, "Property taxes matter to businesses because the tax rate on commercial property is often higher than the tax on comparable residential property. Additionally, many localities and states levy taxes on the personal property or equipment owned by a business."
In the recent economic downtown, real and person property taxes have been a contentious subject as businesses deal with rising taxes even though property values have fallen. That occurs because local governments generally respond to falling property values by raising tax rates to make up needed revenue.
Location, Location, Location
Property taxes are the most influential tax in terms of impacting location decisions by businesses.
High property taxes have an especially negative impact on small business starts. That's because property taxes are paid regardless of profits, and many small businesses are not profitable in their first few years. Analysts estimate that a 10% increase in business property taxes will decrease the number of new plants opening in a state by between 1% and 2%.
Authors of the report say states competing for business would be well served to keep statewide property taxes low, so as to be more attractive to business investment. To read the full report, click here.