A new report from the Tax Foundation has found Utah has the 16th most competitive tax climate in the country.
The foundation’s report took into account a number of factors when determining the new rankings including corporate tax rates, individual income tax rates, sales taxes, property taxes and unemployment insurance requirements to determine which states have the most taxpayer friendly environments. The highest ranking state was Wyoming which has no corporate or individual income tax while the worst state in the nation was New York.
The report does find that one size does not fit all when it comes to how each state handles its tax collections but that there are things to learn from many states to improve a state’s tax environment. It states that while the Wyoming model would likely not work for every state, taxing the way Idaho, Indiana and North Carolina do is a scenario for every state to consider.
These three states do impose all of the major taxes (property, sales, and income taxes) but do so at moderate rates with comparatively well-designed tax structures. While Utah continues to look for ways to refine its tax code, these three states may have ideas for us to consider to improve our rankings.
One area where these three states scored better than Utah was in sales taxes.
All three of these states ranked in the top 17 of the country while Utah came in 27th for sales taxes among the 50 states. For Utah to improve its score the state needs to look for ways to broaden its sales tax base and lower the overall sales tax rate. Utah’s base for taxing goods is fairly broad but taxes on services is an area the state may want to examine in the future. It becomes more tricky though as lawmakers will want to ensure the state is not expanding taxes to goods or services that go into making a final product. This will create tax pyramiding and be problematic for Utah businesses.
These three states also scored better than Utah in property tax rankings in the report. While Utah ranks well in property tax rankings this report shows there is work that can still be done to improve Utah’s property tax system. The state could look at ways to further decrease taxes on tangible personal property, paid only by businesses, or find ways to encourage governments within the state that rely heavily on property taxes to stretch their budgets further before increasing property taxes.
The report notes that property taxes matter to businesses and that tax rates on commercial properties are often higher than taxes on comparable residential properties. This is true in Utah.
While Utah residences receive a 45% discount on the value of their property before a tax is levied, commercial properties pay the full 100% of their value for taxes. This way of taxing is particularly difficult on small businesses because regardless of the business’s success they will still have to pay the full cost of the property tax. So while a company is in its infancy and establishing itself it is paying the cost of providing government services through the property tax for itself and also making up the 45% discount given to residential property owners.
We certainly are not advocating for eliminating the residential property advantage but pointing out there are some items for policy makers to investigate if they’d like to improve Utah’s tax competitiveness.
The full report from the Tax Foundation can be found here.