Maine’s business tax system is one of the worst in the country but is making gains, according to a report released Monday by the Small Business and Entrepreneurship Council.
Maine was 46th overall for the second year in a row in a ranking of the 50 states and the District of Columbia, which ranked the worst at No. 51, followed by Minnesota, New Jersey, New York and Iowa. South Dakota, Texas and Nevada topped the list as the best states for business.
The study is the latest in a string of reports that list Maine’s business climate as one of the worst in the country which often are cited by conservatives in the state as a reason to lower Maine’s taxes.
The 18 tax measures used to compile the study included: corporate and personal income, capital gains, property, sales, gas and diesel, unemployment, and wireless services.
Maine’s top personal income and capital gains tax rate of 8.5 percent and corporate income and capital gains tax rate of 8.93 percent put the state in the bottom 10 when compared with other states. The report noted that Maine has high property taxes as a share of personal income. The state also received unfavorable rankings for its taxes on gas and diesel.
But the state received more favorable rankings when the report looked at sales and excise taxes as a share of personal income, where Maine was tied for 17th; unemployment taxes, where Maine ranked 26th; and taxes on wireless services, where Maine ranked 11th.
The report also mentioned Maine as one of nine states that has taken steps to provide tax relief. Speaking by phone Tuesday, Raymond J. Keating, chief economist for the Small Business and Entrepreneurship Council and author of the report, said a decrease in Maine’s top income tax rate that takes effect in January and a push by Gov. Paul LePage to lower it even further are good signs for Maine’s business climate.
Keating said that taxes aren’t necessarily the sole deciding factor when deciding where to locate a business. Commerce centers California and New York ranked near the bottom of the list, while South Dakota — not exactly known as the entrepreneurship capital of the country — took the No. 1 spot.
“There are a whole bunch of factors that come into play, not just taxes,” Keating said. One of those factors is market opportunity, but “similar or even better market opportunities might lie elsewhere in the nation” in states with lower tax burdens.
“From a policy standpoint, when you consider that small- and medium-sized firms create about two-thirds of net new jobs, why would you want to tax them more heavily?” Keating said.
Not every economic study lists Maine as bad for business. A report released in 2011 by the Council on State Taxation listed the Pine Tree State as the No. 1 friendliest state for taxes on new business investment. But Keating said that report ignored Maine’s high capital gains taxes and took a narrow look at what types of investments are considered.
Keating’s assessment of the tax burden is more broad-based. He encouraged states to avoid allowing politicians to try to read the tea leaves and give tax breaks to individual businesses and instead lower taxes across the board and let the market decide.