The Cowboy State has once again won the tax rodeo for having the most competitive tax structure according to the Tax Foundation.
The Tax Foundation recently released its 2025 State Competitiveness Index. This study revealed which states are taxpayer-friendly for both individuals and businesses. States are ranked based on income, sales, excise, property, capital gains, corporate, payroll, estate, and VAT consumption taxes. The Tax Foundation found that Wyoming is the most taxpayer-friendly state, Montana is 5th, Idaho is 11th, and Washington is 45th.
The report acknowledges that replicating Wyoming’s exact tax structure may not be possible due to its significant tax revenue from natural resources, but other taxpayer-friendly states like Montana and Idaho can be replicated.
Wyoming was the top-ranking state for the fifth year in a row mostly because of its lack of corporate or individual income tax. Additionally, it has no inventory, franchise, occupation, or value-added taxes. It also enjoys tax exemptions for manufacturers and data centers. Wyoming has the luxury of having no corporate or personal income tax due to significant tax revenue from minerals. Although Wyoming’s exact tax model can’t be copied, its principles can be applied everywhere.
Idaho improved from its prior ranking of 16th to 11th. This can be attributed to its individual and corporate tax rates declining from 5.8% to 5.695%. Idaho has no statewide property tax (local tax only), no estate tax, and a 33-cent gas tax. Idaho currently collects $4,541 in state and local tax collections per capita. Idaho can improve its ranking by lowering individual income taxes even more.
The principal research analyst for the Idaho Tax Commission notes, “Idaho’s tax structure is typified by moderate to low overall taxes. It’s a proportional tax system with a broad structure and good balance between tax types.”
Washington ranked poorly because of its multiple high tax burdens. It is an outlier in that it doesn’t have a typical income tax, but it does levy a 7% capital gains income tax. Similarly, while it doesn’t have a corporate income tax it does have a state gross receipts tax ranging from 1.3% to 3.3%. It also levies a sales tax, property tax, estate tax, and a high gas tax. Washington collects $6,644 in state and local collections per capita. Washington needs to lower its spending and rein in what is considered taxable. Unfortunately, a recent state court ruling allowing a capital gains income tax opens the door to tax other assets and sources of income.
Montana has an individual income tax ranging from 4.7% to 5.9%. Montana has a relatively low tax burden with a property tax rate of 0.69%, no estate tax, and a 33.75 cent gas tax. Montana collects $5,065 in state and local tax collections per capita. Montana has been trending in the right direction by passing multiple tax cuts in the 2023 legislative sessions. Included was lowering the income tax ceiling from 6.75% to 5.9%, increasing the small business exemptions from $100,000 in 2021 to now almost $1 million in 2024, and lowering the capital gains tax to make Montana the 4th lowest in the country. Gov. Gianforte recently announced that he plans to reduce the state income tax even more to 4.9%.
In response to the release of the Tax Foundation study, Montana Gov. Greg Gianforte commented, “In Montana, we’ll continue advancing our pro-jobs, pro-family, pro-business policies to make our state the best place to live, work, and start a business. By cutting taxes and reducing red tape, the American dream can come alive for even more Montanans”
The Tax Foundation study shows that reducing tax rates should be at the forefront of policy decisions for every legislative session across the country. Washington state needs to address the shortcomings of its tax code. The Evergreen State should be looking at ways to trim spending, instead of stretching the meaning of words to tax even more like the capital gains effort. Wyoming, Montana, and Idaho are on the right track and should remain steadfast in their pursuit of limited government, efficient spending, and low taxes.
Sam Cardwell is a Policy Analyst for the Mountain States Policy Center, an independent research organization based in Idaho, Montana, Eastern Washington and Wyoming. Online at mountainstatespolicy.org.
