Image Credit: Tax Foundation
The Center Square [By J.D. Davidson] –
Tennessee ranks high for tax policy nationwide, according to a Tax Foundation report that looked at the individual income tax portion of its recent 2023 State Business Climate Index.
The Volunteer State ranked sixth best in the individual income tax category.
Tennessee just missed being one of the four states that received a perfect score because it applies its gross receipts taxes to S corporations, which, according to the report, would be taxed under individual income tax codes in most states.
“The individual income tax is important to businesses because states tax sole proprietorships, partnerships, and, in most cases, limited liability companies and S corporations under the individual income tax code,” Janelle Fritts, with the Tax Foundation, wrote.
Overall, Tennessee ranked 14th in the Business Climate Index, helped by its low ranking on individual taxes but hurt by high rankings in corporate taxes (45th) and sales taxes (46th).
Several states received a perfect score in individual income taxes, including Alaska, Florida, South Dakota and Wyoming. All those have no individual income tax and no payroll taxes other than an unemployment insurance tax.
According to the report, the worst states are New York, California, New Jersey and Hawaii.
“High marginal rates adversely affect labor output and investment and can influence location decision-making, especially in an era of enhanced mobility, where it is easier for individuals to move without jeopardizing their current job, or without limiting the scope of their search for a new one,” Fritts wrote.