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July 21, 2003

Study ranks New York's business-tax climate among worst in nation

New York ranks lower than most other states in terms of "business tax friendliness," because of both the cost and complexity of taxes businesses must pay, a study by the Tax Foundation finds.

Only six of the 50 states rank below the Empire State in the foundation's first annual State Business Tax Climate Index. Tax systems in competing states such as Pennsylvania, Michigan, Illinois and North Carolina are significantly more favorable for business, according to the study.

"Taxes affect business decisions, job creation and retention, plant location, competitiveness and the long-term health of a state's economy," according to the Tax Foundation, a nonpartisan, nonprofit organization based in Washington.

"States do not enact tax changes (increases or cuts) in a vacuum," its report said. "Every tax change will in some way change a state's competitive position relative to its immediate neighbors and the region."

The Tax Foundation index is a composite of five indicators: corporate income tax, personal income tax, sales and gross receipts taxes, state fiscal balance, and the administrative complexity of the state's tax system as measured by its conformity with other systems.

Among the five sub-indices, New York receives its worst ranking on the Tax Base Conformity Index, where its tax system is rated worst in the country. The state's alternative minimum tax, which requires corporations to pay at least 2.5 percent of income in tax regardless of credits for investment and job creation, is a factor in that rating.

The state scores better than average on the Corporate Income Tax Index, largely because its corporate income tax has a single rate. The Tax Foundation noted, however, that New York's corporate tax rate is higher than most other states'. Its personal-income taxes are more burdensome than those in almost two-thirds of the states, the study found.

Most of the indicators used in the index are from 2002. Thus, the study does not reflect the major tax increases New York's Legislature imposed this year.

The Tax Foundation study is available at www.taxfoundation.org/businesstaxclimate.html.