New rankings published by the Tax Foundation indicate that the business tax climate in Kansas is poor. Kansas ranks 35th among the 50 states, just 15 spots from the bottom. In last year’s ranking, Kansas placed 32nd, so our state is slipping relative to other states.
The economic development strategy of Kansas and Wichita is to offer tax abatements as an inventive to lure or retain industry. The study authors note the problem with this and what this action tries to cover up: “State lawmakers are always mindful of their states’ business tax climates but they are often tempted to lure business with lucrative tax incentives and subsidies instead of broad-based tax reform. … Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate. A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state’s competitiveness.”
Are taxes and tax policy important? After a review of the literature, the report concludes: “… the general consensus of the literature has progressed to the view that taxes are a substantial factor in the decision-making process for businesses.” But there are some authors who disagree.
The state business climate index considers these factors: corporate taxes, individual income taxes, sales tax, unemployment tax, and property taxes. Kansas performs best on unemployment taxes, ranking 7th among the states. Our worst raking is 41st in property taxes. In sales tax, Kansas ranks 32nd, and this does take into account the statewide sales tax increase of one cent per dollar that started July 1.
The report recognizes that taxes are only one of many factors that companies use when deciding where to locate facilities. Kansas’ low ranking means we can make large improvements in this area. If we don’t, we are likely to have to keep up our ad hoc approach to economic development, were we craft special deals under the guise that we know which deals to make.
The full report is available at the Tax Foundation by clicking on 2011 State Business Tax Climate Index. An introductory article is at Background paper: 2011 State Business Tax Climate Index (Eighth Edition).