Tax group: Ariz. is more business friendly

Arizona has improved its business climate but remains a middling state in that regard, according to the Tax Foundation’s latest annual assessment of the states.

The Grand Canyon State finished 22nd for 2014. That was up from 27th the past two years and was largely because the state let its temporary salestax hike expire, the foundation wrote in its report.

The ranking is based on how a state’s tax rates compare ARIZONA ECONOMY with those of everyone else in five categories: corporate income tax, personal income tax, sales tax, property tax and unemployment insurance tax. Within those categories, the report considers about 100 variables that affect business.

The categories are weighted as the foundation, a non-partisan tax-research group, sees fit and leads to an overall ranking. The final product is an ordering of the states that may represent tax heavens.

Wyoming, South Dakota and Nevada are the most businessfriendly. California, New Jersey and New York are considered the least so.

The same states have generally occupied the same positions every year since 2008 in the foundation’s rankings. They also generally carry the corresponding reputation as low-tax or high-tax states.

Arizona is considered the best state for its low taxes funding unemployment assistance. It came in 49th in sales tax, not only because of the generally high rate but also because it is applied to some business transactions that others don’t charge, according to the report.

“Taxes matter to business,” the foundation’s report said. “Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), or shareholders (through lower dividends or share value). Thus, a state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth.”

But the rankings don’t always correspond to business vitality. Arizona is considered better for business than California, and Nevada is seen as far better than both.

One byproduct of a good business climate is attractiveness for venture capital. In the first half of this year, San Die- go had attracted $47 million, according to the National Venture Capital Association. Phoenix pulled in $9 million. Las Vegas won $3 million.

Similarly, the jobs picture isn’t explained by business taxes, either.

Since the nation’s employment hit bottom in February 2010, Arizona has replaced 43 percent of the 297,000 jobs lost from the start of the Great Recession. California replaced 62 percent of the 1.3 million jobs it lost. Nevada filled 28 percent of the 175,000 losses. Wyoming replaced 85 percent of the 13,000 workers it lost.

Nationwide, the economy has recovered 78 percent of the 8.7 million jobs lost.