MICHIGAN — A new report shows significant improvement in the Michigan’s business tax climate following reforms enacted in 2011.
The ranking by the Tax Foundation – which says Michigan has the 12th best business tax climate in the nation, up from 18th a year ago – begins to erode the lingering negative perception across America about the state, said Chuck Hadden, CEO of the Michigan Manufacturers Association.
“It sends a signal to people that we are moving in the right direction and we are getting things done,” Hadden said.
The Washington, D.C.-based Tax Foundation’s annual report ranks Michigan as now having one of the best corporate tax climates: Seventh in the nation, a complete swing from the second-worst 49th position in previous years. The improvement results from the 2011 elimination of the Michigan Business Tax and replacing it with a 6-percent corporate income tax that took effect Jan. 1, 2012.
Proponents say the tax, which is paid by businesses organized as C corporations and exempts small businesses, is fairer and far easier to understand and calculate.
While corporations take far more into consideration than the state tax climate when considering a business investment, Hadden believes the improved Tax Foundation ranking can help Michigan get more attention as a place for a business to locate a new plant or make an investment.
“It doesn’t eliminate us right away,” Hadden said of the improved business tax climate, compared to previous years. “It does get us in the conversation.”
The Tax Foundation ranks states based on their level of taxation in five categories: corporate income, individual income, state sales, unemployment insurance and personal property.
Michigan ranks 11th nationally in the individual income tax and seventh on state sales taxes. The unemployment rate continues to rank low, 44th nationally, and the state was 31st in property taxes.
George Erickcek, senior analyst at the W.E. Upjohn Institute for Employment Research in Kalamazoo, is unsure how much rankings such as the annual the Tax Foundation report can help, as long the state is in the top half or top third.
A state, however, can pay a price for ranking low or at the bottom for business tax climate when pursuing economic development investments, Erickcek said.
“That’s a hard barrier to step over,” he said.
At 12th overall nationally and seventh for corporate income tax, “you don’t have someone walk into your state and say: ‘Look at this – why would I ever consider your state?’” Erickcek said. “No one uses this to select their sites, but they can use it as a hammer, and being 12th takes that hammer away.”