Connecticut ranked 42nd on business tax climate in U.S.

The tax climate of Connecticut ranked 42nd this year out of all 50 states, according to a new report by the Tax Foundation. Connecticut rose one place in the 2014 State Business Tax Climate Index, going from 43rd to 42nd place in the rankings.

The top ranked states were Wyoming (No. 1), South Dakota (No. 2) and Nevada (No. 3); and the lowest ranked were New York (No. 50), New Jersey (No. 49) and California (No. 48).

The State Business Tax Climate Index, now in its 10th edition, collects data on more than 100 tax provisions for each state and synthesizes them into a single score. The states then are compared against each other, so that each state’s ranking is relative to actual policies in place in other states around the country.

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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 Tax Foundation describes itself as a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937.

The Top Ten

The top ten states for Business Tax Climate in 2014 are:

1. Wyoming

2. South Dakota

3. Nevada

4. Alaska

5. Florida

6. Washington

7. Montana

8. New Hampshire

9. Utah

10. Indiana

The Bottom Ten

The 10 lowest ranked states in 2014 are:

50. New York

49. New Jersey

48. California

47. Minnesota

46. Rhode Island

45. Vermont

44. North Carolina

43. Wisconsin

42. Connecticut

41. Maryland

Starting a conversation

“The goal of the State Business Tax Climate Index is to start a conversation with policy-makers about how their states fare against the rest of the country,” said Tax Foundation economist Scott 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.

Changes in the tax code

Several states have moved in the rankings since last year, with Texas dropping out of the Top Ten for the first time, landing at No. 11. Virginia and Kentucky both fell three places, to No. 26 and No. 27, respectively. On the positive side, Arizona climbed five ranks to No. 22 and Kansas shot up six spots to No. 20.

“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,” Drenkard said. “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.”