Is Texas a Business Friendly State?

Texas claims to be a business friendly state and it is in many respects. Texas has a business friendly regulatory, judicial, labor environment and no personal income tax, not to mention friendly people and lots of consumers. The one fly in the ointment is Texas’ business taxes. Texas business shares more of the state and local tax burden than all other states but two, Alaska and Wyoming, according to the Council on State Taxation’s and Ernst and Young’s State and Local Business Tax Burdens. Texas business pays 63.5% of all Texas taxes. The absence of a personal income tax is a likely explanation for the high tax share for business. Some other large industrial states show somewhat lower business tax shares: Florida 53.3%, Illinois 45.3%, New York 42.2% and California 40.4%. All but Florida have substantial personal income taxes. The high business share also reflects Texas’ relatively high property and sales taxes.

The good news is that Texas fares pretty well in total business tax burden compared to other large industrial states. Texas ranks 14th best on the list of effective tax rates for corporate headquarters and newer firms according to the Tax Foundation and KPMG in their updated publication, Location Matters. Of the thirteen states that rank ahead of Texas, only two, Ohio and Florida might be considered major industrial states with substantial populations.

Thanks to the Texas Taxpayers and Research Association for calling my attention to these two interesting studies. While some businesses might support a personal income tax for Texas to try to reduce the proportional business tax burden, business executives are probably pretty happy with no personal income tax.

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