Connecticut’s taxes became more hostile to business over the past year, according to the Tax Foundation, which ranked the state’s policies 47th out of the 50 states.
Connecticut returned to the bottom 10 of the rankings for the first time since 2006 when it ranked 41.
Dr. Kail Padgitt, author of the report released Tuesday, said Connecticut made “a pretty strong debut” on the bottom of the list by falling nine positions.
Padgitt said Connecticut fell because its leaders “enacted their own quote, unquote millionaire’s tax” which affects people making over $500,000.
“For those people in the business community, unfortunately it’s not a surprise,” said Bonnie Stewart, vice president of government affairs at the Connecticut Business and Industry Association. “It doesn’t send a great message especially at a time when companies are struggling.”
“Hopefully this message will be received, not happily but seriously,” Stewart said. “This report is kind of like the snooze button, the second reminder.”
According to Stewart, the biggest tax concern among businesses is “consistency and predictability.” “Companies are not like the public sector. They actually do long-term planning,” she explained.
Stewart said the tax proposals that are introduced each year but never come to a vote also hurt Connecticut’s business climate because it takes away the ability to plan.
She said one assumption in the report, that “state lawmakers are always mindful of their states’ business tax climate,” isn’t so universal.
“Unfortunately that is not something state legislators think about in Connecticut,” Stewart said.
According to the Tax Foundation, the states with the best tax climate are: South Dakota, Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware, Utah and Indiana. The worst climates are found in: North Carolina, Rhode Island, Minnesota, Maryland, Iowa, Ohio, Connecticut, New Jersey, California and New York.
The foundation’s report ranks states based on taxes in five categories: personal income tax (worth 30 percent), sales tax (25 percent), corporate income tax (19 percent), property tax (15 percent) and unemployment insurance tax (11 percent). The weight of each category is determined by the degree of variability among the states.
Connecticut’s highest rank was for its corporate income tax (18). All the rest of its taxes are below average. Its sales tax ranks 26, unemployment insurance, 30, individual income tax, 47 and property tax, 49.
Tennessee is the only state with a more onerous property tax.
Connecticut fell 23 places in the income tax ranking from number 24 to 47.
Stewart said the individual income tax is relevant to business because many small businesses pay taxes through their owner. She said raising taxes on these people is risky.
“They’re financially independent and can go wherever they want for six months and one day,” she said. “If those guys move, who’s next?”
Two of Connecticut’s neighbors also found themselves in the bottom 10, Rhode Island at 42 and New York at 50. Nearby New Jersey rose two spots from 50 to 48, although it remains below Connecticut.
“This has been a growing concern as we go into budget discussions,” said MetroHartford Alliance president and CEO Oz Griebel. “This is another illustration of why we all need to work together to create a better business climate.”
Griebel said the next governor will face a $300 million current year deficit when sworn in. After that, the new governor will face projected shortfalls of more than $3 billion a year. He said relying on tax increases will only exacerbate the problems highlighted in the report.
Stewart said the legislature often forgets the competitive aspect of tax rates, the variation from state to state. “The tax issue is looked at in a vacuum,” she said.
She said the state should update the sales tax exemptions to reduce the time and money spent complying with the tax.
The Tax Foundation report is one of several verdicts on Connecticut’s tax policy. A May 2010 report by Connecticut Voices for Children shows that the state puts a much higher tax burden on individuals than directly on businesses. That report was based on a nationwide study by the Council on State Taxation.
For the past four years Connecticut has hovered just above the bottom ten in the Tax Foundation rankings (39, 37, 38 and 39). Vermont left the bottom 10 to make room for Connecticut. New Mexico was the only state to fall further, 10 places, while Alabama matched Connecticut’s decline. Illinois made the most improvement, rising seven places.