Hawaii ranks in bottom 10 of states with favorable tax climates

Hawaii has one of the worst business tax climates in the country, according to a new report.

The state ranked in the bottom ten of the Tax Foundation’s index comparing states based on how well they structure their tax systems.

After ranking in the mid-to-low 30s since 2014, Hawaii fell to 41st last year and to 43rd this year. The index noted property taxes have become less favorable in the state since the last index was released.

“The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates,” the authors wrote.

Hawaii’s corporate tax ranked 19th, and its individual taxes ranked 46th, both unchanged from the last index. Its sales taxes improved slightly, and so did the state’s unemployment insurance taxes. However, property taxes, which include taxes on real and personal property, dropped a point, ranking 32nd this year.

“Property taxes matter to businesses, and the tax rate on commercial property is often higher than the tax on comparable residential property,” said the authors. “Additionally, many localities and states levy taxes on the personal property or equipment owned by a business.”

Property taxes play a significant role in business location decisions, with one study finding a 10% increase in business property decreases the number of new plants opening in a state, the report said.

“States which keep statewide property taxes low better position themselves to attract business investment. Localities competing for business can put themselves at a greater competitive advantage by keeping personal property taxes low,” the authors wrote.

States that ranked the lowest included Maryland, Connecticut, California, New York and New Jersey.

States with the most favorable business tax climates were Wyoming, South Dakota, Alaska, Florida, and Montana.

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