Louisiana Business Tax Climate Still Rated Unfavorably

October 29, 2010

Tax Foundation ranks the state 36th in nation

This week the Tax Foundation ranked Louisiana 36th in its annual State Business Tax Climate Index, down from 35th last year and 32nd in 2006. South Dakota took first place with the lightest tax burden, while New York came in last with the heaviest.

The Tax Foundation, a DC-based nonpartisan research group, rated states in terms of five tax categories: personal income, sales, corporate, property, and unemployment insurance. Kail Padgitt, the report’s author, then weighted each category in terms of the level of disparity between each state. For example, unemployment insurance, for which each state has a similar level of burden, contributed little weight, 11 percent of the index.  Income taxes, which vary greatly across jurisdictions, contributed 30 percent towards a state’s score.

Louisiana’s placement, comfortably in the bottom half of the states, was primarily on account of its sales and income tax rates, for which it came in at 46th and 26th respectively. On the other hand, the state’s unemployment insurance had the state in 5th place. (The full report is here. Scroll down to page 10 for the category breakdown.)

“When you look at Louisiana’s overall scores,” says Padgitt, “we have seen a gradual decline in the state… A lot of the [explanation has] to be placed on the sales tax. Louisiana does very poorly on the sales tax… Even though your state rate is low, your local-option sales taxes are quite high.” These parish and city level taxes are bringing Louisiana’s ranking down.

While disparate sales taxes across different parishes would appear challenging to reform, Padgitt does believe there are viable reform options that would have “an immediate impact on the business climate.” He would repeal taxes on “business to business activities,” which he believes are more destructive to economic activity and business migration than retail sales taxes.

Click here to read the full article and to hear an interview with the report’s author.

Fergus Hodgson is the Capitol Bureau Reporter with the Pelican Institute for Public Policy. He can be contacted at fhodgson@pelicaninstitute.org, and one can follow him on twitter.

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