The Tax Foundation released its annual State Business Tax Climate Index, which ranks the states in terms of their friendliness to businesses when it comes to taxes. And the news is not good for startup states including New York and California-- which came in dead last. 

Which states came out on top? Wyoming, South Dakota and Nevada enjoy the most favorable tax codes in the country, according to the report. 

The Tax Foundation is a non-profit, non-partisan tax research organization based in Washington, D.C. It created an overall tax system score allowing states to see how their climates stack up against others. The rankings are based on more than 100 variables relating to corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes.

“It is important to remember that even in our global economy, states’ stiffest and most direct competition often comes from other states. The Department of Labor reports that most mass job relocations are from one U.S. state to another, rather than to a foreign location,” the report said. 

That’s why California, ranked number 48, might have to worry about competition from its neighbor to the east, Nevada, which came in at number three. 

The State Business Tax Climate Index, now in its 10th edition, can see notable shifts in the rankings from year to year. 

For example, North Carolina recently passed comprehensive tax reforms. Though its tax climate is currently the 44th worst in the nation, it could rank within the top 20 as the reforms take effect over the next few years. The report’s authors call for other states to improve their rankings by changing taxes to be less complex and more neutral.  

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Published on: Oct 14, 2013