Some would argue, but, according to the Tax Foundation, a nonprofit, nonpartisan public education organization based in Washington, D.C., Colorado is among the top-10 most business friendly states in the country.
The Tax Foundation determines the most amiable-to-businesses states based on tax systems that maintain a “level playing field for all types of businesses and business transactions,” according to the 2004 report. “The touchstone of the State Business Tax Climate Index is neutrality. An economically neutral tax system benefits and punishes all businesses equally.”
States that ranked in the top-five, from first to fifth, are South Dakota, Florida, Alaska, Texas and New Hampshire. Taking this year’s No. 6 and 7 spots are Nevada and Wyoming. Colorado came in eighth, followed by Washington and Oregon.
According to story in Oklahoma City’s The Journal Record, Scott Hodge, president of the Tax Foundation, said, “The ideal tax system, whether at the state, federal or international level, should be neutral to business activity. In such a system, people would base their economic decisions on the merits of the transactions rather than the tax implications.” Hodge also said that “nearly all of the best states raise sufficient revenue without imposing at least one of the three major state taxes – sales taxes, personal income taxes and corporate income taxes.”
The Journal Record reported that the state tax index is comprised of five major features of a state tax system: corporate income tax, individual income tax, sales or gross receipts tax, unemployment insurance tax and the state’s fiscal balance.
Under the personal income tax category, Colorado was ranked 13th. And, because of the TABOR Amendment, Colorado received an A grade for fiscal balance, winning first place in the nation.
Colorado State Treasurer Mike Coffman was surprised at the Tax Foundation’s report, except for the fiscal balance rating. Although he said there needs to be some adjustment to TABOR, Coffman said that tax limitations produce a positive environment for businesses. “Having limitations on government’s ability to raise taxes at will is positive for business growth.”
But Coffman said the report “ignored local property taxes on businesses, like the business personal property tax. We have a high tax rate regarding the business personal property tax, and it’s punitive to businesses.” Coffman and others statewide are working on proposals to change the structure of the business personal property tax.
In the late 1990s, El Paso County initiated a five-year plan for phasing out the business personal property tax. However, in the second year county commissioners eliminated it entirely. “The cost to the county for forgiving the business personal property tax was about $6 to $7 million,” said Frank Barber, director of El Paso County Economic Development & Public Finance. “That money was lost, and we have tightened our belts because of it, but the current thinking is that is should remain as is.”
Overall, Barber said taxes can “go too far or not far enough.” He said Colorado, including Colorado Springs, is business friendly, and there are plenty of attractive local incentives to bring businesses into the Springs. Barber said he believes that funding education is most important to business growth. “Without tax funds for education, a community won’t attract people or produce an educated population,” he said. And in turn a community without a strong education system won’t be enticing to businesses, he said.
Greg Gandy is with BiggsKofford, a Springs certified public accounting firm, and he agrees with Coffman about the state’s business personal property tax. “Although our state is business friendly with a low income tax rate, the business personal property tax is non-competitive,” Gandy said. And he said TABOR governs the incentives that Colorado communities can offer businesses. “The business personal property tax is the single biggest obstacle (to business growth) in combination with TABOR and Gallagher.”
Regardless of the in-state affects of TABOR, the Tax Foundation hails Colorado’s governmental limited spending abilities. According to the foundation study, regardless of the business personal property tax, businesses are more apt to find tax-related-bliss in Colorado than the bottom five business friendly states. Companies contemplating a move to Hawaii, New York, Minnesota, West Virginia and Rhode Island will discover the least hospitable tax systems.
And tax systems and tax refund packages don’t always guarantee long-term stability. In 1996, Florida legislators approved a $4 million tax refund package for a major credit card company that wanted to open a call center in Tampa. The Tax Foundation reported that this year the call center moved out of state and laid off 1,100 workers – one reason the Tax Foundation recommends low and simple tax systems.