How Does Your State Rank at Tax Time?

There’s nothing like the proverbial knock of the tax man to focus your attention on how much it costs your company to do business. How much you must pay to play depends in part on where you’ve chosen to hang your hat.

If you can take the weather and relative isolation, for example, South Dakota is a great state for entrepreneurs and small businesses, according to the just-released “Business Tax Index 2011” from the Small Business and Entrepreneurship Council (SBE Council). It took the top ranking for being tax-friendly in this year’s index.

But if your business calls the nation’s capital or Minnesota home, you’re not as blessed. The District of Columbia came in dead last, handily leaving in the lurch the next-to-the-last Land of 10,000 Lakes.

The index is based on 18 different tax measures that include income, capital gains, property, death/inheritance, unemployment and various consumption-based taxes such as state gas and diesel levies.

[Late? Check Out Online Tax Software]

The index reported that the 10 best tax systems are South Dakota in first place followed by Texas, Nevada, Wyoming, Washington, Florida, Alabama, Alaska, Ohio and Colorado.

The 10 worst state tax systems, according to the index, are Rhode Island, Hawaii, Vermont, California, Maine, Iowa, New York, New Jersey, Minnesota and District of Columbia.

The index has an interactive nationwide map that provides a snapshot of each state’s individual ranking.

“High levels of spending translate into increased tax burdens on the entrepreneurs and investors who drive economic growth and job creation," said Raymond J. Keating, chief economist for SBE Council and author of the report. “There is a reason why low tax states are better able to attract investment, and ‘Business Tax Index 2011' helps to shed light on the tax burdens that are affecting the decisions of individuals and businesses. In many states, elected officials continue to propose tax increases — and actually raise them — in order to fund out-of-control government spending. High levels of spending translate into increased tax burdens on the entrepreneurs and investors who drive economic growth and job creation.”

"The path is pretty simple for elected officials that want to attract investment, encourage small business growth and create jobs,” added Karen Kerrigan, SBE Council president and CEO. “Keep taxes low, and get spending under control.  In several states — particularly those that are making headlines such as Ohio and Wisconsin — the governors are working to do just that, and these states will reap the benefits of their sound approach.  A competitive tax system will help small businesses grow, and allow each state's economy to thrive."

• Small Business Owners Labor Under Weight of Tax Law
• When Small Business Does Well, America Does Well
• 11 Issues Small Business Will Be Forced to Grapple With in 2011

Reach BusinessNewsDaily senior writer Ned Smith at nsmith@techmedianetwork.com. Follow him on Twitter @nedbsmith.