In the Tax Foundation’s newest study, “Location Matters: A Comparative Analysis of State Tax Costs on Business,” Kentucky finds itself in a surprisingly business-friendly position considering its right-to-work status and level of indebtedness relative to its neighbors.
According to the report, the Bluegrass State has the 18th lowest effective tax burden for mature or established businesses and the 7th lowest tax burden for new, upstart companies among the states. Wyoming and Nebraska took the prize for the lowest effective tax burden while Pennsylvania and Hawaii have the heaviest burden. As University of Kentucky Professor John Garen noted recently, low taxes themselves are a key ingredient for economic prosperity, not tax shifting.
Despite Kentucky’s relatively high ranking, neighboring Ohio significantly outperformed the Bluegrass State, having the fifth lowest tax burden for mature businesses and third lowest for upstart companies. For Kentucky to attract business from Ohio, and to remain ahead of rapidly rejuvenating Indiana, Kentucky will have to address some serious issues important to attracting new businesses and jobs – like its forced-union status and its relative high corporate income tax rate.
Aside from state corporate net income taxes, “Location Matters” also considered gross receipts and franchise taxes, property taxes, unemployment insurance, and sales taxes on business inputs. Unlike previous studies, “Location Matters” attempts to “address the bottom line question asked by many business executives: ‘How much will our company pay in taxes?’” If Kentucky can improve in some key areas of tax and labor policy, business executives may just like the answer they get from the Bluegrass State.