Executive Briefings

U.S. States Compete to Attract Business with Lower Taxes

Just as countries vie with one another to be agreeable places in which to do business by having congenial tax rates, U.S, states have come to realize that in order to attract jobs and diversify revenue, they too, must adjust their tax structure accordingly.

For example, long having struggled to attract business and diversify its economy, New Mexico recently passed a tax reform package which will likely cause nearby states like Arizona, California and Nevada to take notice and possibly rethink their own efforts at reform. Texas' governor Rick Perry, who runs a fairly low-tax state environment, is calling for even more reductions.

According to a report by The Financial Times, the New Mexican legislation cuts the corporate income tax rate from 7.6 per cent to 5.9 per cent, phasing it in over five years. The proposal does not go as far as the recent corporate tax cut to 4.9 per cent over time in adjacent Arizona, or plans in Louisiana - which are now on hold - to scrap income tax completely. The corporate income tax reduction is only one part of the package - the other main provision being the switch to a so-called "single sales factor" for manufacturers that allows corporate taxes to be levied only on their sales in the state, rather than an average of sales, payroll and property.

The FT further reports that this perk has gained traction across U.S. states in recent years, including in Oregon, which passed a 30-year guarantee specifically designed for Nike, the sportswear maker, to keep its single sales factor in place. In New Mexico, Intel, which employs more than 3,000 people, lobbied fiercely for the change.

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For example, long having struggled to attract business and diversify its economy, New Mexico recently passed a tax reform package which will likely cause nearby states like Arizona, California and Nevada to take notice and possibly rethink their own efforts at reform. Texas' governor Rick Perry, who runs a fairly low-tax state environment, is calling for even more reductions.

According to a report by The Financial Times, the New Mexican legislation cuts the corporate income tax rate from 7.6 per cent to 5.9 per cent, phasing it in over five years. The proposal does not go as far as the recent corporate tax cut to 4.9 per cent over time in adjacent Arizona, or plans in Louisiana - which are now on hold - to scrap income tax completely. The corporate income tax reduction is only one part of the package - the other main provision being the switch to a so-called "single sales factor" for manufacturers that allows corporate taxes to be levied only on their sales in the state, rather than an average of sales, payroll and property.

The FT further reports that this perk has gained traction across U.S. states in recent years, including in Oregon, which passed a 30-year guarantee specifically designed for Nike, the sportswear maker, to keep its single sales factor in place. In New Mexico, Intel, which employs more than 3,000 people, lobbied fiercely for the change.

Read Full Article