WYOMING HAS THE BEST TAX CLIMATE IN THE NATION FOR DOING BUSINESSES

Wyoming’s tax system ranks 1st overall on 2023 State Business Tax Climate Index, announced on Wednesday.

The Tax Foundation’s State Business Tax Climate Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how well states structure their tax systems and provides a road map for improvement.
Wyoming does not have an individual income tax and a corporate income tax. It has a 4% percent state sales tax, a max local sales tax rate of 2%, and an average combined state and local sales tax rate of 5.22%.
Other states that ranked in the top five with Wyoming are South Dakota, Alaska, Florida and Montana. The states with the worst tax climates are New Jersey, New York, District of Columbia, California and Connecticut.

Expected results
Economist Dr. Robert Godby, an associate professor with University of Wyoming in the Department of Economics, told Cowboy State Dail about the features of the state’s economy, which made it possible to achieve such a high position in an authoritative rating.
“The state to basically exports its taxes, because most of the energy produced in Wyoming is exported elsewhere, so the consumers who end up paying that tax live outside of the state,” Godby said.
An average family of three in Casper pays about $3,000 in taxes a year, but receives close to $30,000 in public services, Godby noticed.
“That’s including the cost of education that their child would incur,” he admitted.

Over-reliance on severance
However, over-reliance on the mineral extraction tax has left the state’s economy in a dependent position.
“The boom-and-bust cycle is very much alive in Wyoming,” Godby said of the state’s dominant extraction industries. “In fact, our tax system kind of amplifies that, right, because the state’s economy is very dependent on energy.”
On the one hand, high energy prices tend to saturate the Wyoming economy, but on the other hand, this same factor slows down the development of other sectors of the economy and, in fact, stops the development of the industry in other parts of the country.
Meanwhile, Wyoming chief economist Wenlin Liu stressed that it was energy that helped protect the state’s economy during a recession.

At the mercy of geopolitical events
It should also be taken into account that in today’s globalized, interdependent society, energy prices also largely depend on geopolitical events, and sometimes on the whims of hostile nations.
And when there is a big downturn in the energy sector—a crash—the revenues of the energy-reliant state are also severely reduced.
That, in turn, puts a wide range of public services on the chopping block. Once times are good again, some services don’t always get restored.
“The boom-bust cycle leads to a very conservative state,” Godby explained. “They’re less likely to invest, for example, in public services that require ongoing expenditures. They’re more likely to invest in one-time expenditures when times are good, but there’s always this kind of incentive to squirrel away funds for a rainy day, because you never know when the rain is going to come.”

Efforts To Diversify
Such a precarious and dependent position could make it difficult to obtain public services that would be attractive to economic development, Godby said. This is the key factor that works against government efforts to diversify.
“Very often, companies that are looking to locate somewhere aren’t necessarily looking for low taxes, but good public services, so that’s kind of the flip side of the coin,” Godby explained. “Sometimes I’II say to people that, you know, if taxes were everything in economic development, Wyoming would be California, and California would be Wyoming.”

Thus, California has one of the highest tax rates in the country, in fact, it ranks 48th in the Tax Foundation’s list of states with a business-friendly tax climate. Despite this, the economy is booming in the state, as there is a developed public service sector, they have amenities.
‘Fix The Roof While The Sun Shines’
According to the expert, the issue of changing the tax structure of the state has been raised more than once with the Legislature. However, such a decision time after time did not find sufficient support – from a political point of view, it turned out to be a very steep, uphill climb.
“That’s the worst possible time to raise taxes on people by implementing a new tax, but the opposite occurs in boom times like right now,” Godby said. “You might say, you know, maybe we should fix the roof while the sun shines, which is kind of where we are, possibly, right now.
“The sun is shining with these high energy prices, creating kind of windfall revenues. But, of course, when you’re doing well, people don’t feel like there really is any kind of incentive to change tax policy.”
That’s led state lawmakers to create a lot of “rainy day” reserve funds and trust funds in an attempt keep state services on a more even keel.
“Those are kind of the coffee cans where the nuts get squirreled away, waiting for that next bust,” Godby said. “But, you know, then the question becomes when is it raining hard enough that you break them open to use them?
“Because they’re always afraid that if you use them, then they won’t be available in future years. Those reserve funds allow the state to postpone the tough decisions about, do we need to change the tax system here? When the sun is shining, there’s lots of other things you’d rather do.”
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Main sources: Cowboy State Daily, Tax Foundation https://cowboystatedaily.com/2022/10/27/report-wyoming-most-tax-friendly-for-business/