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For the eighth year in a row, New Jersey’s tax system is ranked as the worst in the nation by the independent Tax Foundation’s annual State Business Climate Index, which compares the tax systems of all 50 states to determine which are the most hospitable to business and economic growth.

But improvement may be on the way for New Jersey in next year’s index, with the presumed sunset of Corporate Business Tax surtax on Jan. 1, 2022 and New Jersey’s recent changes on the treatment of foreign income.

“Both of these big developments have not taken effect yet, and should improve New Jersey’s standing in this annual study,” said NJBIA Chief Government Affairs Officer Christopher Emigholz.

“New Jersey unfortunately lacks tax balance as evidenced by ours being the only state in this index that is in the bottom third of every tax used for the index. But we’re happy to see the Murphy administration and lawmakers recognize the need to improve our tax climate with reforms such as the planned sunsetting of the Corporate Business Tax surtax and the recent change in how we treat GILTI/foreign income.

“Having the worst CBT rate in the nation, by far, does not help in studies like this, our overall reputation, and our competitiveness in attracting and creating jobs and capital.”

The Tax Foundation’s State Business Tax Climate Index is designed as a relative index that compares five major tax components – Individual Income Tax, Sales Tax, Corporate Income Tax, Property Tax, Unemployment Insurance Tax – as well as 125 variables. The income tax, sales tax and corporate tax are weighted more heavily than property taxes and unemployment insurance taxes for ranking purposes.

According to the study, the states with the best business climates are Wyoming (No. 1); South Dakota (No. 2); Alaska (No. 3); Florida (No. 4); Montana (No. 5); New Hampshire (No. 6); Nevada (No. 7); Utah (No. 8); North Carolina (No. 9) and Indiana(No. 10).

Nevada, South Dakota, and Wyoming have no corporate or individual income tax (though Nevada imposes gross receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax.

According to the study, the 10 states with the worst business climate are New Jersey (No. 50); New York (No. 49); California (No. 48) Connecticut (No. 47); Massachusetts (No. 46); Maryland (No. 45); Minnesota (No. 44); Vermont (No. 43); Hawaii (No. 42); and Rhode Island (No. 41).

“Tax competition is an unpleasant reality for state revenue and budget officials, but it is an effective restraint on state and local taxes,” the report read.

“When a state imposes higher taxes than a neighboring state, businesses will cross the border to some extent. Therefore, states with more competitive tax systems score well in the Index because they are best suited to generate economic growth.”

Although New Jersey’s neighbor New York finished at No. 49, just one spot ahead of the Garden State in tax competitiveness, Pennsylvania and Delaware finished significantly better at No. 32 and No. 21, respectively.

The Tax Foundation’s report, found here, compares tax systems as of July 1, 2023, which is the start of the 2024 fiscal year for state budgets.