Virginia’s overall tax climate ranks 33 among the states

Published September 28, 2016 by Paula C. Squires

Virginia has the 33rd most competitive tax code in the nation, according to the 13th annual State Business Tax Climate Index released Wednesday by the nonpartisan Tax Foundation in Washington, D.C.

The report measures how well-structured each state’s tax code is by analyzing more than 100 tax variables in five different tax categories: corporate, individual income, sales, property and unemployment insurance.

The breakdown of Virginia’s rankings this year (with 1st the best and 50th the worst):

•   Overall tax climate: #33

•   Corporate tax structure: #6

•   Individual income tax structure: #40

•   Sales tax structure: #11

•   Property tax structure: #28

•   Unemployment insurance tax structure: #39

This year’s most competitive states include No. 1, Wyoming; 2, South Dakota; 3, Alaska; 4, Florida; 5, Nevada; 6, Montana; 7, New Hampshire; 8, Indiana: 9, Utah; and 10, Oregon.

According to the report, states are penalized for overly complex, burdensome and economically harmful tax codes and rewarded for transparent and neutral tax codes that do not distort business decisions. A state’s ranking can rise or fall significantly not only because of its own actions, but also because of reforms made in other states.

“Our goal with the State Business Tax Climate Index is to start a conversation between taxpayers and policymakers about how their states fare against the rest of the country,” Foundation Policy Analyst Jared Walczak said in a statement. “While there are many ways to show how much a state collects in taxes, the Index is designed to show how well states structure their tax systems, and to provide a roadmap for improvement.”

The index can also be used as a tool for identifying state tax trends. For instance, the report shows that a number of states are now opting to simplify their tax systems by consolidating individual income tax brackets, or even moving to a flat tax. Hawaii eliminated its top three individual income tax brackets in 2016 and reduced its top marginal rate from 11 to 8.25 percent, improving its overall rank from 30th to 27th. North Carolina moved to a flat individual income tax in 2014 and continues to phase in rate reductions, building on the success of its historic 2013 reforms and shoring up its place at 11th overall.

Another trend is the tendency for states to shift away from taxes on capital. Pennsylvania, for example, has now completely phased out its capital stock tax, boosting its property tax component ranking six places, from 38th to 32nd, and improving its overall state ranking from 28th to 24th.

“Substantive state tax reform has gained a lot of momentum over the past few years,” said Tax Foundation Director of State Projects Scott Drenkard. “The stagnation of our federal tax code means that policymakers are turning to state codes to boost their national and global competitiveness. The state codes are ripe for reform and it’s encouraging to see so many states taking action.”

Here’s a link to the full report: 2017 State Business Tax Climate Index