The D.C.-based Tax Foundation has put out its annual ranking of state business tax climates, and Maine has improved in its standing – by one spot.
Last year, Maine ranked number 38 – meaning there were 14 states that had a higher overall tax burden for business, at least by the Tax Foundation’s reckoning.
This year, the group put Maine at 37 – so there were 15 states worse off than Maine.
The ranking has long been a source of pain for Maine pols – particularly before the Tax Foundation revamped how it ranks states. For years, Maine had been at or near the top of the list, in a bad way. It was, annually, listed as one of the states with the highest tax burdens.
In 2010, however, the Tax Foundation changed its methodology. That was something the state had been pushing for years. In response, the foundation separated from Maine’s total tax collections those paid as property taxes by out-of-staters with second homes in the Pine Tree State. It also considered taxes paid by Maine residents to other states, by folks who work across state lines or who own property elsewhere.
So in 2009, the foundation had originally ranked Maine as having the second-highest tax burden, after Vermont. When it revised the numbers in 2010, using new methodology, it was revealed Maine would have ranked 14th from the bottom.
In a release Wednesday, Tax Foundation economist Mark Robyn noted the importance that taxes play in attracting and keeping companies.
“Even in our global economy, a state’s stiffest and most direct competition often comes from other states,” said Robyn. “State lawmakers need to be aware of how their states’ business climates match up to their immediate neighbors and to other states in their region.”
From the release:
The 10 best states in this year’s 2012 Index are Wyoming (#1), South Dakota (#2), Nevada (#3), Alaska (#4), Florida (#5), New Hampshire (#6), Washington (#7), Montana (#8), Texas (#9), and Utah (#10). Many of these states do not have one or more of the major taxes, and thus do not have the associated complexity and distortions.
The 10 lowest ranked, or worst, states in the 2012 Index are Iowa (#41), Maryland (#42), Wisconsin (#43), North Carolina (#44), Minnesota (#45), Rhode Island (#46), Vermont (#47), California (#48), New York (#49), and New Jersey (#50). While New Jersey remained steady compared with 2011, Rhode Island improved by implementing a modest income tax reform. The states in the bottom ten generally have complex, non-neutral taxes with comparatively high rates.
So what variables go into the rankings?
Again, from the report, the institute looks at:
… 118 different variables in the five important areas of taxation (major business taxes, individual income taxes, sales taxes, unemployment insurance taxes, and property taxes) and then adding the results up to a final, overall ranking.
The foundation didn’t discuss why Maine went from 38 to 37.
It does note that Maine ranks favorably in terms of the state sales tax analysis:
The five states without a state sales tax—Alaska, Delaware, New Hampshire, Oregon, and Montana—achieve the best sales tax component scores. For states with a sales tax, Virginia has the best score because it has a low general sales tax rate, avoids tax pyramiding, and maintains low excise tax rates. Other states that score well include Kentucky, Maine, Michigan, and Maryland.
Taxes, as always, have been a big part of the policies and politics in Augusta. Gov. Paul LePage’s biennial budget, passed by the Legislature last year, included tax reforms that totaled $150 million in cuts, changing tax codes and reducing the top income tax rate from 8.5 percent to 7.95 percent.
This year, LePage is pushing a proposal to exempt retirees’ pensions from state income taxes. And members of the Legislature’s Taxation Committee worked all summer on a tax reform package, which will be analyzed and debated in the current session.