Tax Foundation ranks Oklahoma among lowest tax states for business

A new study of state tax costs on business from the Tax Foundation ranks Oklahoma fifth best in the nation for new firms and 16th best for mature firms. Among states in the region, Oklahoma ranked second lowest in business tax costs for new firms and third for mature firms. While Texas ranked slightly ahead of Oklahoma for mature firms (12th versus 16th), the Lone Star state was determined to be 42nd best for new firms, well behind Oklahoma (5th).

The Tax Foundation report, titled “Location Matters: A Comparative Analysis of State Tax Costs on Business”, claims to be the first study of business taxes that provide comparisons of actual state tax burdens. Unlike other studies, the report is intended to “address the bottom line question asked by many business executives: “How much will our company pay in taxes?””

When looking at taxes paid by specific newly-established and mature industries, Oklahoma ranked among the ten lowest-cost states in six of 14 categories. The state’s ranking ranged from 3rd for new call centers, which are calculated to have a total effective tax rate of 3.9 percent, to 31st for the mature capital intensive manufacturing category, with a total effective tax rate of 13.4 percent.

These findings are particularly notable as proponents of cutting or eliminating Oklahoma’s income tax frequently cite a separate study from the Tax Foundation that ranks Oklahoma 33rd in business tax climate.  Whereas that study measures a state’s tax system in relation to the principles of a ‘model business tax structure’, this new study focuses on how much businesses actually pay in taxes.

It’s worth noting that while both Tax Foundation reports, as well as scorecards and rankings produced by the Council on State Taxation (COST) and American Legislative Exchange Council (ALEC), focus heavily or exclusively on state taxes to measure a state’s business climate, taxes represent only one component of a state’s overall economic environment. As Peter Fisher has shown in ‘Corporate Taxes and Economic Growth‘, “differences in state corporate income taxes from one state to another are usually trivial when stacked up against differences in other costs of doing business.” And a state’s economic success is determined by much more than business costs: the education system, workforce development initiatives, physical infrastructure, health and well-being, and quality of life all have a significant impact. As Chris Benge, the former Republican Speaker of the Oklahoma House of Representatives and government affairs director for the Tulsa Metro Chamber recently told the task force on comprehensive tax reform:

If our ability to educate and train employees for a 21st century economy is damaged through lack of funding, if we can’t maintain our roads and bridges, strong health care system, robust research and technology infrastructure, safe streets, etc., then the benefits of a reduction in the income tax rates may be limited.

These latest findings reconfirm that Oklahoma is already a low tax state. We have little to gain and much to lose by pushing that to even further extremes.