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Tax Foundation rates WV 23rd in business tax climate

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West Virginia scored better than its neighbors on the annual State Business Tax Climate Index released this month by the Tax Foundation, but it's still in the middle of the pack nationally.

West Virginia came in 23rd on the list. Pennsylvania placed 24th, Virginia 26th, Kentucky 27th, Ohio 39th and Maryland 41st.

Nationally, the top five were Wyoming, South Dakota, Nevada, Alaska and Florida. The bottom five, from 46th to 50th, were Rhode Island, Minnesota, California, New Jersey and New York.

"The goal of the State Business Tax Climate Index is to start a conversation with policymakers about how their states fare against the rest of the country," Tax Foundation economist Scott Drenkard, one of the authors of the report, said in a news release announcing the report's findings.

"With this report, we're asking, ‘How well is your tax code structured? Are businesses in your state spending too much time complying with onerous tax provisions? Are you double taxing things you shouldn't?"

Drenkard said states that moved up on this year's list are the ones whose tax codes collect revenue "without unnecessarily distorting business decisions" and by becoming more neutral.

The report examined and weighted five particular taxes in detail: individual income taxes (32.4 percent), sales taxes (21.5 percent), corporate taxes (20.2 percent), property taxes (14.4 percent) and unemployment insurance taxes (11.5 percent).

Of the 50 states, West Virginia ranked 20th in corporate tax, 24th in individual income tax, 25th in sales tax, 26th in unemployment insurance tax and 27th in property tax.

"State lawmakers are always mindful of their states' business tax climates but they are often tempted to lure business with lucrative tax incentives and subsidies instead of broad-based tax reform," the report's authors wrote.

"Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate. A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state's competitiveness."

John Deskins, director of the Bureau of Business & Economic Research at West Virginia University, said taxes are an important part of business decisions, but not the most important part.

"Rankings like this do matter, as businesses certainly care about state tax burden and the overall cost of doing business in a state given its regulatory climate.  But one must also keep in mind that taxes/broader regulatory climate is only one of numerous factors that businesses consider when deciding whether to enter or expand in a given state," Deskins said.

"And most economists would say that this cost is ‘down the list' compared to larger factors that affect business decisions, such as the supply of labor overall, the qualifications of a labor market, other input prices, access to markets, transportation costs, and the like.

"But the research here does consistently find that taxes/regulatory burden do matter when analyzing economic growth, and the size of the effect is not negligible, but it is small in comparison to these bigger picture items.  Overall, I do believe that policymakers should strive to make changes that will improve West Virginia's overall tax climate, holding all else equal.

"So for instance, it is a good thing that Nevada fares well on the ranking, but that is by no means a large enough factor to offset the tremendous shock to the Nevada economy that came from the severity of the bursting of the housing bubble there."