Arizona Ranked By Tax Foundation In Annual Index

October 25, 2013

The Tax Foundation recently released its annual State Business Climate index. It ranks all 50 states based on how business-friendly their tax systems are.

Arizona dropped a few spots from last year to 22. For the second straight year, Wyoming topped the list. South Dakota and Nevada were next. The group cited Arizona’s temporarily raised state sales tax as a reason for dropping the state five spots from 2013.

Sandra Watson, president and CEO of the Arizona Commerce Authority, called the rankings favorable to Arizona but said they do not tell the whole story.

 "While we’re very competitive from a tax structure standpoint, there are additional tax benefits and tax reductions that are currently in place that will continue to lower our overall ranking," Watson said.

Watson points to a 2011 law approved by the state legislature which includes provisions to reduce a bunch of taxes over a few years, including corporate income and property taxes. A state’s tax environment is...

 "Absolutely a critical factor in determining the next corporate move for a corporation," Watson said.

But she said it is not the only factor, pointing to quality of life, schools and workforce as other considerations CEOs make when they look to relocate.

Patrick Banger is Gilbert’s town manager. He has also spent a lot of time in the private sector. He agreed that a city or state’s tax climate is a big deal but not the whole deal.

"As important as taxes are, it’s also important what type of services and the quality of those services they get for that tax base. Most of these businesses are driven by employees and families and the environment that that community has to offer for their employees and their families, especially if it’s a relocation, are very, very important," Banger said.

Banger said different businesses care about different taxes. A company that is leasing office space for example would not pay as much attention to property taxes as one that is buying a building. Watson agreed.

"The various taxes all do come into play, but then there’s an overall balance, and so they’ll look at corporate, they’ll look at property taxes, they’ll look at unemployment insurance, individual income taxes, and they’ll look at the entire cost structure," Watson said. "But then they’ll also focus on whether or not they can attract the talent that they need."


Watson said in most cases, being able to recruit high-skilled talent is the most important issue businesses consider when they look to relocate or expand, followed by the tax and regulatory environments. But, Banger said his discussions with firms potentially coming to his city often start with money.

"The initial conversation with just about any company is what they’re looking at is that initial capital investment and how they can best minimize that cost. Beyond that, and that’s a very important factor, but beyond that they are looking at the quality of your community and the quality of the services you deliver," Banger said.

While Arizona’s overall score from the Tax Foundation was 22, it did get the country’s best score in terms of its unemployment insurance tax. It ranked sixth in property tax, 18th in individual income tax, 26th in corporate income tax and next to last in sales tax.