Arizona rises in state business tax climate rankings

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(The Center Square) – Arizona’s business tax climate is moving up the ranks in comparison to other states, according to a new report from the Tax Foundation.

The state lies at No. 14 in 2024 after previously being at No. 19 in the index, and the organization credits this to changes to the income tax signed into law by former Republican Gov. Doug Ducey.

“Arizona transitioned from a two-bracket, graduated-rate individual income tax system with a top rate of 2.98 percent to a flat tax rate of 2.5 percent, becoming one of the 11 states with a flat individual income tax structure,” the report said. “Among those 11 states, Arizona now has the lowest individual income tax rate. This major development helped the state improve seven places on the individual income tax component and five places overall, from 19th to 14th.”

Some Democrats argued that the lowered individual income tax is responsible for the predicted state budget shortfall at the end of fiscal year 2024, whereas some Republicans have said the higher spending in the budget signed by Gov. Katie Hobbs is responsible, The Center Square reported on Oct. 12.

The top five states in the foundation’s index were Wyoming, South Dakota, Alaska, Florida and Montana.

Meanwhile, the bottom five worst states were New Jersey, New York, California, Connecticut and Massachusetts.

When broken down by components, Arizona ranks ninth in individual income tax, 22nd in corporate tax, 10th in unemployment insurance tax, 11th in property tax, and 41st in sales tax. The sales tax sits at 5.6% statewide, but can be higher than 8% when combined with sales tax rates in municipalities.

While Arizona has the lowest tax rate of any state with a flat tax, nine states decide not to have an individual income tax, such as Alaska, Washington and Tennessee. However, the foundation looks at multiple components in assessing a business tax climate, so Tennessee ranked 15th overall and Washington ranked 35th overall.

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