Nevada Ranked Third for Best Business Tax Climate, But

Some folks have been celebrating the fact that Nevada has been ranked number three on the Tax Foundation’s list of best states for business tax climate. “Business tax climate” is measured by the Tax Foundation by using over 100 different variables in the five important areas of taxation (major business taxes, individual income taxes, sales taxes, unemployment insurance taxes, and property taxes) and then adding the results up to a final, overall ranking. Nevada and the other top ten states basically have low taxes or no taxes at all in the five categories.

Good for Nevada… perhaps. But let’s take a closer look at the top 10 states for business tax climate and the bottom 10 states and see if we can learn anything. We’ll start with data from the Department of Commerce, Bureau of Economic Analysis. Here are the 10 worst states for “business tax climate” and their respective GDPs.

Worst States for “business tax climate” Same state ranked by GDP
50. New York #3 $ 1.1565 Trillion (7.6 percent of U.S. GDP)
49. New Jersey #7 $ 497 Billion (3.42 percent of U.S. GDP)
48. California #1 $ 2,080,6 Trillion (13.34 percent of U.S. GDP)
47. Minnesota #17 1.84
46. Rhode Island #45 .34
45. Vermont #51 .18
44. North Carolina #10 2.81
43. Wisconsin #20 1.73
42. Connecticut #23 1.61
41. Maryland #15 2.07
Total Percentage of the U.S. Economy 35 Percent

The 10 worst states for business tax climate combined compose of 35 percent of the U.S. economy. And the best states for business tax climate?

Best states for “business tax climate” Same state ranked by GDP
1. Wyoming #48 $38.2 Billion (0.26 percent of U.S. GDP)
2. South Dakota #47 $39.9 Billion (0.27 percent of U.S. GDP)
3. Nevada #32 $127.5 Billion (0.88 percent of U.S. GDP)
4. Alaska #46 0.31
5. Florida #4 5.20
6. Washington #14 2.42
7. Montana #49 0.26
8. New Hampshire #42 0.42
9. Utah #33 0.81
10. Indiana #16 1.84
Total Percentage of the U.S. Economy 12.67 Percent

The 10 best states for business tax climate combined make up a little more than 12 percent of the U.S. economy.

How do these states look in terms of household median income? Usingdata from the Census Bureau, we’ll begin with the 10 worst states again:

Worst states for “business tax climate” Median Income Ranking
50. New York #16 $55,246
49. New Jersey #3 $67,458
48. California #10 $57,287
47. Minnesota #11 $56,954
46. Rhode Island #17 $53,636
45. Vermont #19 $52,776
44. North Carolina #39 $43,916
43. Wisconsin #21 $50,395
42. Connecticut #4 $65,753
41. Maryland #1 $70,004

I see a lot of 70s, 60s and 50s in there and only one state in the 40s. There are three of the top five states on this list. Now for the best states for business tax climate:

Best states for “business tax climate” Median Household Income Ranking
1. Wyoming #13 $56,322
2. South Dakota #28 $48,321
3. Nevada #27 $48,927
4. Alaska #2 $67,825
5. Florida #37 $44,299
6. Washington #12 $56,835
7. Montana #38 $44,222
8. New Hampshire #6 $62,647
9. Utah #14 $55,869
10. Indiana #31 $46,438

A lot more 40s and only a couple 50s and 60s.

What if we look at education? There are many ways to measure education success, but let’s get straight to the point. How do these states do in preparing and advancing students to college? U.S. News and World Report published a ranking system based on the percentage of schools who received gold and silver awards that reflect which schools are most successfully preparing students for college, based on students participating in and achieving passing scores on Advanced Placement and International Baccalaureate tests. Here are the results, starting with the worst states for business tax climate:

Worst states for “business tax climate” Education (high school ranking) (US News & World Report)
50. New York #5
49. New Jersey #11
48. California #1
47. Minnesota #32
46. Rhode Island #27
45. Vermont #8
44. North Carolina #26
43. Wisconsin #23
42. Connecticut #3
41. Maryland #2

Four of the top five states are in this group. Only one ranked above the 20s.

Best states for “business tax climate” Education Ranking (high school ranking) (US News & World Report)
1. Wyoming #45
2. South Dakota #39
3. Nevada #47
4. Alaska #42
5. Florida #7
6. Washington #18
7. Montana #35
8. New Hampshire #10
9. Utah #31
10. Indiana #15

The best states for business tax climate only had four states which ranked lower than 30, and three states ranked in the bottom 10.

As evidenced by this quick analysis, plenty of data shows us how a state’s economy is doing. But an even more nuanced look at theses states’s data demonstrates that this business climate measurement used by the Tax Foundation is one dimensional in nature.

The lesson here is: That the top 10 worst states for taxes make up 35 percent of the economy, have some of the highest household incomes and shine for their education systems tells us that “business tax climate” doesn’t say much at all.”