Mo. above average for business-tax climate

Missouri is in the middle of the country geographically, and it is middle of the road in terms of its business-tax climate, according to a January report from the nonprofit Washington, D.C.-based Tax Foundation.

While it might be middle of the pack, its overall climate faired better than 32 states, including seven of the eight surrounding states, the Tax Foundation reports in its 2016 State Business Climate Index.

Jared Walczak, a policy analyst with the Tax Foundation who co-authored the report, said the business-tax climate gives business owners and individuals insight on the neutrality of a state’s tax base, which can inform capital-investment decisions.

“We’re looking at the structure of state tax systems, not necessarily as much at rates and not at all at collections,” Walczak said of the annual report. “Is a state’s tax structure simple? Is it neutral? Is it transparent? We’re looking at whether a state is getting the fundamentals right in how it approaches tax policy.”

So how did Missouri perform? By category, the state ranked third for its corporate-tax rate; 28th in individual income tax; 23rd for sales tax; and eighth both for unemployment insurance tax and property tax.

Walczak said it’s not uncommon for states to rank high in one or two categories, and low in others.

Among surrounding states, notable rankings include Oklahoma at No. 1 and Nebraska at No. 2 for unemployment insurance tax. But Nebraska was 39th in property taxes and Oklahoma 40th in individual income taxes.

Tennessee, which overall was just ahead of Missouri at No. 16, was eighth in individual income tax but 46th in sales tax.

“This is important for individuals and businesses who want predictability, stability. You want to have as little complexity as possible because compliance costs are dead-weight loses,” Walczak said. “Rates matter, revenue levels matters but so does the structure and neutrality of a tax code.”

He cited General Electric leaving Connecticut on the heels of tax code changes.

“If you’re doing things right, you don’t need an incentive. Your tax code is the incentive,” Walczak said. “But when you’re not, incentives are what states often fall back on.”

Ryan Mooney, the Springfield Area Chamber of Commerce’s senior vice president of economic development, said business operators typically consider a wide swath of regional data when making investment decisions.  

“The site-selection process we deal with is very complex, and it’s different for each company. Depending on their product or service, tax climate may be a big consideration or it may be a small one,” Mooney said. “The No. 1 issue right now – and we foresee it being this way for a long time – is access to the skills sets and the type of labor they need.”

Criteria that cut across industries, Mooney said, are labor readiness, transportation infrastructure, location and access.

“Businesses and entrepreneurs are looking at a lot of different factors when they decide where to locate and whether or not to expand,” said Amy Blouin, executive director of the Missouri Budget Project, noting a state’s tax climate often isn’t the most important thing to growing companies.

“Those factors include things like the public services that a state provides, the type of workforce they are going to be able to access, and quality of life is proving to be much more important to entrepreneurs.”

Blouin said infrastructure and education are important, too.

“Businesses are people, and they’re going to want to locate where they could see their families thrive,” she said.

Pointing to Kansas, tax analysts say the sharp tax cuts in 2012 and 2013 under Gov. Sam Brownback put enormous strains on its state budget and should serve as a caution to Missouri lawmakers.

“We’ve been critical of the Kansas experiment from the start because it was not structurally sound. They did not improve their neutrality. They did not improve their tax structure, so the cuts did not benefit them,” Walczak said.

Patrick Ishmael, director of government accountability for free-market tax policy group Show-Me Institute, said a state’s tax policy does matter to businesses.

“There’s kind of a basket of issues they look at that include the quality of the workforce, the education that’s available, but also, tax policy,” he said. “If you’re going to invest in a state or a project or a warehouse, you want to make sure you’re going to make as much money back as you can and not have it all siphoned away to the government.”

Walczak praised Missouri for its corporate income tax, which has a flat rate, and for competitive unemployment insurance taxes and property taxes. He said the elimination of the state’s franchise tax, as well as expected reductions in income taxes, should improve its position on the index.

Hurting the Show-Me State were a relatively high sales taxes average of 7.8 percent, with state and local rates combined, and the nine-bracket income tax structure – though the top bracket is very low at $9,000 – which Walczak said is outdated.

“The fact here is that Missouri is not a low-tax state, and we need to move toward more pro-growth tax strategies,” Ishmael said.

Wyoming, which doesn’t have a corporate tax or gross receipts tax, ranked No. 1 in the index. New Jersey, which has an inheritance tax and an estate tax – along with some of the highest property taxes in the country – landed at No. 50.