Tennessee taxes among most business-friendly

Tennessee is the 14th best state for taxes on business, according to the Tax Foundation’s look at state tax policies.

The 2012 State Business Tax Climate Index released Wednesday compares states on five different categories – major business taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes.

Not surprisingly, Tennessee’s ranks highest – 8th – in the income tax category and worst – 43rd – in the sales tax category. Tennessee does not tax individual wages or salaries. However, Tennessee’s combined state and local sales tax is the nation’s highest at 9.4 percent, the report says.

Comparing state business tax policy is important because a state’s biggest competition for new businesses comes from other states and not the threat of losing jobs to other countries, the report says.


“Even in our global economy, a state’s stiffest and most direct competition often comes from other states,” said Tax Foundation economist Mark Robyn. “State lawmakers need to be aware of how their states’ business climates match up to their immediate neighbors and to other states in their region.”

Tennessee ranks higher than all of its neighboring states on the 2012 index, although Missouri sits only one spot behind at No. 15. Rankings for other neighboring states are: Mississippi, No. 17; Alabama, No. 20; Georgia, No. 34; South Carolina, No. 36; North Carolina, No. 44; and Kentucky, No. 22.

Given that Gov. Bill Haslam has proposed lowering the Tennessee sales tax on food, it will be interesting to see if Tennessee cracks the Top Ten on next year’s index – assuming the Legislature passes the tax cut.

The 10 best states for business taxes in 2012 are: Wyoming, South Dakota, Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas and Utah.

The Tax Foundation, founded in 1937, is one of the oldest think tanks in the country. It may be best known for its annual Tax Freedom Day report, a calculation of how many days taxpayers have to work to pay their total state and federal taxes.

Tax Foundation report: 2012 State Business Tax Climate Index