The Tax Foundation has released its 2015 State Business Tax Climate Index and South Dakota is near the top of the list, ranking 2nd for the fourth year in a row. In a word, our Business Tax Climate rocks.
A theme among the top ten is the absence of common taxes such as corporate income taxes or personal property taxes. South Dakota lacks both these taxes along with a personal income tax and a couple others (no business inventory tax and no inheritance tax). Advantageous, yes? [Please channel your Yoda voices for that last sentence].
The top ten states in the business tax climate index include:
- South Dakota
- New Hampshire
You may be wondering how we could have possibly ranked #2 when we all know South Dakota has the best business tax climate in the nation. Two reasons: Sales Taxes and Unemployment Insurance Taxes.
Sales Tax: Because we pay almost no other taxes in the state our sales tax is, out of necessity, broad-based. South Dakota levies a 4.0% state sales tax and permits municipalities to levy up to a 2.0% local sales tax. So a business will never pay more than 6.0% sales tax on equipment purchased for their operation. The rub with this, is that the majority of states either don’t assess a sales tax on certain types of equipment or industries (manufacturing is very common) or will offer a refund on part or all of sales taxes paid.
The State has developed an incentive program to help with this challenge.
Unemployment Insurance Tax: The approach to unemployment insurance taxes by the Tax Foundation looked at the maximum rate assessed by a state and, because South Dakota does levy a higher rate on construction operations (6.0% the first year) we scored poorly. If the Tax Foundation had addressed the average rate paid we would have fared much better as we have one of the lowest experienced employer rates in the nation (go us!).
So even though we aren’t technically first, we can rest assured that South Dakota is still very likely the best business climate in the nation and definitely first in our hearts.