The Tax Foundation publishes a report each year called the State Business Tax Climate Index. The purpose is to help businesses find out how their states compare to others in terms of being friendly to business interests. The Foundation assesses the impact of the major types of taxes including property taxes, unemployment insurance taxes, corporate taxes, individual taxes and sales tax. While the report indicates that a state can still rank in the top 10 while levying all major tax types, the key is whether the state has low rates and levies taxes on broad bases.
A business law lawyer in Texas knows many different factors go into deciding where to start operating your business. While a state tax burden can have a big impact on profits, there are also ways to manage your tax burden through choosing the right business form. For example, S-corporations are taxed differently than C-Corporations and corporations can be taxed differently than partnerships or sole proprietorships. An experienced attorney can provide insight into the best way to keep your taxes affordable so your business can keep more of its money.
Texas Is No Longer in the Top 10
The state of Texas has been in the top 10 states for business friendliness for the past several years. In the 2014 report, however, Texas was replaced on the list by Indiana. The reason is that Texas has not made changes to its tax code in recent years to be more business friendly, while Indiana has been working hard to make positive changes. Indiana has slashed its corporate income tax rate down and has had a great deal of success. In fiscal year 2012, the corporate income tax rate in Indiana was 8.5 percent, and the rate will fall to 6.5 percent by 2016. In 2017, the individual income tax rate in Indiana is also expected to fall.
Texas, however, has not addressed a tax that hurts its corporate and individual component scores: the Margin Tax. The Margin Tax was added in 2007 and is described as problematic because "both C-corporations and pass-through businesses that usually file in the individual tax code have to comply with the tax." Because of the margin tax, Texas is also penalized when comparing its individual tax rate to other states. This is because while the state has no individual income tax, the margin Tax does result in LLC and S-corp income being taxed. To regain its too 10 ranking, the Tax Foundation reports that the state will need to address this tax, which the report also calls "complicated."
Although Texas is no longer on the top 10 list, the state is still number 11 in the country on the list of the most tax-friendly places for businesses to be located. This means that businesses can still do very well in Texas, especially if they get proper legal help in structuring their business and transactions in a way that minimizes their tax burden.
Contact a business law attorney if you need help with your company. Call Brewer & Prichard P.C. today at 800-445-8710 or visit https://www.bplaw.com to schedule a consultation. Serving Houston, Montrose, Galveston Island and surrounding areas.