South Dakota has won yet another recognition for its tax policy, being listed as having one of the best tax climates in the nation by a Washington-based research group.
The state ranked second according to the 2014 State Business Tax Climate Index from the non-profit Tax Foundation.
The index, which aligns with fiscal years, focuses on 100 different variables, which are divided into five broad tax policy areas: individual income tax, sales tax, corporate income tax, property tax and unemployment insurance tax. South Dakota ranked high in the income tax areas because of its lack of such a tax, but came in 34th and 37th in sales and unemployment insurance tax and 18th in property tax.
South Dakota has occupied the second-place slot on the index for the past three years, always behind top-ranked Wyoming. Nevada, Alaska and Florida were also among the top five states listed this year. The state with the worst tax climate was New York, followed by New Jersey, California, Minnesota and Rhode Island.
Scott Drenkard, one of the co-writers of the index, said the organization has put out a tax burden survey since the 1970s, but began the index 10 years ago.
Drenkard said the index is a better way to help lawmakers set policy because reform often is not a question of simply cutting taxes. A better approach, he said, is to look at exemptions and any double taxing of incomes that is recurring, along with making taxes fairer.
“Those six words – broaden the base, lower the rate – are the bread and butter of tax reform,” he said.
Drenkard said most states tend to make small movements in the rankings, but there are a few exceptions. In the past, Michigan moved up several rankings after getting rid of a tax on gross receipts and replacing it with a more traditional income tax.
North Carolina, which came in 44th this year, is expected to move up to the 17th spot next year since passing a set of reforms partially based on policy suggestions from past editions of the index.
“This is the type of report that can give them specific variables and tax structures they can change to make their states more equitable,” Drenkard said.
Pat Costello, commissioner of the Governor’s Office of Economic Development, said this latest index from the Tax Foundation is just the latest validation from an independent third-party source about the state’s tax policy.
The state was recognized by CNBC in July as the top state for business, and in March the non-profit Mercatus Institute declared the state to be one of the “freest” in the nation, mainly because of its low taxes.
Costello gave the credit for keeping the tax rate low to the state’s tradition of balancing budgets and the work of past governors and state legislators, as well as the current administration and lawmakers.
While both have lean tax numbers, Wyoming has the advantage over South Dakota because they have mineral and oil wealth to help fund state government, he said.