Missouri ranks 13th in the Tax Foundation’s “2022 State Business Tax Climate Index,” down two spots from last year. This publication grades how well states structure their tax systems and provides an overall rank along with individual ranks for five tax types. State indexes such as these are useful tools for comparison, and they help us think about what can be done to move us up in the rankings.
Per the Tax Foundation, states with the best tax systems “will be the most competitive at attracting new businesses and most effective at generating economic and employment growth.” A state should aim for a tax system that does not negatively affect business decisions; you don’t want businesses to relocate or decide not to expand because of tax concerns. Research has found that taxes that are low and broad based are least likely to affect business decisions in this way, and therefore make the best tax systems.
Missouri ranked relatively well for state corporate income tax, unemployment insurance tax, and property tax. Areas for improvement are the individual income tax and sales tax, as Missouri ranked 21st and 25th respectively. (It’s important to note that local taxes are factored into the index, but the main focus is state taxes, so this may not be a full picture of the taxes that affect Missouri’s businesses.) As explained in the index, Missouri has a good definition of taxable income, but a lot of income tax brackets, standard deductions, and exemptions, which complicate the tax system. Missouri’s highest income tax rate, 5.4 percent, is higher than the highest tax rate of 20 other states. The sales tax index is affected by sales tax rates, including the high local sales tax rates from numerous special taxing districts across Missouri.
Lawmakers should act to improve our ranking in this index—not just for bragging rights, but to attract businesses to our state. Lowering tax rates is one way to move Missouri in the right direction. Lawmakers should continue to lower income tax rates and work to rein in special taxing districts to improve the business tax climate in our state.
