howardnlby Howard Stephenson
Utah ranks 27th among the fifty states and District of Columbia for small business survivability, according to the Small Business Survival Committee (SBSC); a non-profit small business advocacy group with more than 70,000 members nationally.

The Seventh Annual Small Business Survival Index – 2002, ranks the fifty states and District of Columbia using 20 indicators of how state and local governments treat small businesses and entrepreneurs. The Beehive State’s 27th ranking compares unfavorably with most of the states surrounding Utah. Nevada and Wyoming rank 2nd and 3rd respectively while Colorado ranks 12th, and Arizona 20th. Idaho ranks only slightly behind Utah at 28th while New Mexico comes in at an unfriendly 47th place.

The top ten states in the ranking in order of business friendliness are South Dakota, Nevada, Wyoming, Texas, Florida, New Hampshire, Tennessee, Washington, Mississippi and Alabama. The bottom ten states in order of most business unfriendly are District of Columbia, Illinois, Maine, Minnesota, New Mexico, California, Rhode Island, Iowa, New York, and Vermont.

The index combines economic indices from various sources which reflect the governmental burden impacting critical economic decisions of small businesses and entrepreneurs. When the indices are added together, they constitute the index number for each state, similar to the old “misery index” which added the rates of inflation and unemployment.

The 20 measures used in the index together with Utah’s value and rank for each indicator are shown below.

Personal Income Tax (Utah top “effective” rate 5.649% – 24th best). The SBSC uses this measure because they say roughly 90 percent of businesses file taxes as individuals, including sole proprietorships, partnerships, and S-Corps. Utah’s top rate is actually 7%, but when income is adjusted for deductions and exemptions, and tax credits are included, the top effective rate is 5.649%.

Capital Gains Tax (Utah top rate 6.3% – 34th best). SBSC uses this measure because state capital gains taxes are direct levies on investment and entrepreneurship – the source of growth in the economy. They note that high capital gains taxes restrict access to capital, and either dampen or redirect risk taking.

Corporate Income Tax (Utah top effective rate 5% – tied for 9th best). SBSC says state corporate income taxes affect a broad range of business decisions, including decisions relating to investments and location.

Individual Alternative Minimum Tax (States which impose the AMT are given a score of “1” while states like Utah which do not have an AMT receive a zero score, producing a favorable rating on this measure). The individual alternative minimum tax (AMT) is anti-growth, according to SBSC. The AMT imposes a minimum tax rate that must be paid by individuals, regardless of tax credits or deductions taken.

Corporate Alternative Minimum Tax (As above, Utah does not have an AMT and therefore receives a zero score which gives a favorable rating on this measure). Similar to the Individual AMT, the corporate AMT diminishes the effectiveness of potentially positive, pro-growth tax relief measures.

Indexing Personal Income Tax Rates (The SBSC gives Utah a zero (favorable) score on this measure because they inaccurately believe Utah has permanently indexed its income tax.) The Utah Taxpayers Association is working to convince the legislature to index our income taxes for inflation to ensure that inflation does not push individuals into higher tax brackets.

Property Taxes (Utah property taxes as a percent of personal income are 2.54% – tied for 14th best). The SBSC used this measure because property taxes influence where businesses and entrepreneurs choose to locate, as well as decisions relating to investments in businesses, facilities, and homes.

Sales, Gross Receipts and Excise Taxes (Utah sales taxes as a percent of personal income are 4.31% – 39th best). State and local sales, gross receipts and excise taxes impact the economic decisions of individuals and families, as well as businesses. High consumption-based taxes, especially if combined with other taxes like income and property taxes, can serve as real disincentives to productive economic activity, according to SBSC.

Death Taxes (Utah death taxes do not exceed the federal tax credit, therefore we get a favorable zero rating on this measure). SBSC believes that for small businesses, death taxes amount to nothing more than a government hostile takeover at death.

Unemployment Tax Rates (Utah maximum rate 6.1% of pay – 50th best or in other words, 2nd worst). The unemployment tax on wages is another burden on entrepreneurs and business. High state unemployment tax rates increase the relative cost of labor versus capital, and provide incentives for labor-intensive businesses to flee from high-tax states to low-tax states.

Health Care Costs (Utah is 73% of U.S. average per capita personal health care spending – #1 Most favorable in the nation). Health insurance represents a significant cost for businesses. Taxes and regulations increase health care costs, raise the cost of insurance, increase the number of uninsured, and act as another disincentive to starting up or locating a business in a high-cost state.

Electricity Costs
(Utah 77 cents average revenue per kilowatt hour – 7th best). Obviously, every business uses electricity, and for some, electricity costs are the second or third largest expense after labor. High electricity rates due to hefty taxes and heavy-handed, misguided regulations can play a significant part in business decision-making.

Workers’ Compensation Costs (Utah workers’ compensation benefits are 0.55% of covered wages – 4th best). High workers’ compensation rates impact the economy in much the same way as high unemployment tax rates. The cost of labor relative to capital is increased, and incentives for labor-intensive businesses to flee are clear.

Total Crime Rate (Utah’s crime rate is 4.48 per 100 persons – tied for 33rd lowest crime rate). Just like taxes, a high crime rate acts as a disincentive to entrepreneurs. If government is unable to adequately protect lives and property — the fundamental function of any government — then entrepreneurs and businesses will flee to safer environments.

Right to Work (Utah is a right to work state and therefore receives a favorable zero score.) A right-to-work state is one in which employees generally are not forced to become labor union members or pay dues to unions. Such worker protections offer a more dynamic, flexible workforce in the state, which translates into an amenable environment for increased productivity and improved efficiency.

Number of Bureaucrats (State & Local government employees as a percent of state population is 5.56% – 26th best). Regulatory costs are difficult to assess in a uniform, comparative measure from state to state. One rough measure for regulations is the number of state and local government employees—or bureaucrats. After all, with regulations, rules, and mandates come regulators, which raise the costs of doing business. A large number of government employees also means that a significant share of individuals are performing far less productive work than if they were in the private sector.

Tax Limitation States (Utah does not have a supermajority requirement and therefore receives a “1” score.) Requiring supermajority votes, whether for elected officials or voters in general, in order to increase or impose taxes, serves as a solid check on the growth of taxes and government in general. According to Americans for Tax Reform, both taxes and spending do in fact grow more slowly in supermajority states, and economies expand faster in such states.

Internet Taxes
(Utah does not impose any Internet access taxes and therefore gets a favorable zero score.) The Internet serves as a tremendous boost to economic growth and a great expansion of economic opportunity. For small businesses, the Internet allows for greater access to information and markets. Indeed, the Internet gives smaller enterprises access to global markets that they might not have had in the past. Unfortunately, some states have chosen to impose sales taxes on Internet access.

Gas Tax (SBSC reports Utah’s gas tax at 25 cents per gallon – tied for 43rd best). Every business is affected by the costs of operating motor vehicles–from trucking firms to the home-based business paying for delivery services. State government impacts these costs through taxes on motor fuels.

State Minimum Wage (Utah’s minimum wage law is no higher than the federal minimum wage and therefore Utah receives a favorable zero rating.) In the end, the minimum wage raises costs for businesses—particularly harming smaller firms—while also hurting young, low-skilled, low-income workers by too often denying them the work experience necessary to climb the ladder of economic opportunity. Some states actually impose a state minimum wage that is higher than the federal minimum wage.

While the SBSC index is a somewhat crude measure of states’ friendliness to small businesses, it does help to point out areas in which Utah could improve to become a safer place for small businesses to locate and expand. The index can be accessed on the web at .