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There are several indexes that allow to evaluate in which U.S. state Latin American entrepreneurs should internationalize their business, in this entry the tax climate index in the United States.
Many entrepreneurs wonder which is the best state to internationalize their business in the United States? There are several indicators that could shed light when making that decision, one, for example, is the location of Latin Americans in the United States, according to the LDC U.S. Latino GDP Report 2021, more than three quarters of the country's Latino population lives in just ten states: Arizona, California, Colorado, Florida, Georgia, Illinois, New Jersey, New Mexico, New York and Texas.
This demographic distribution will put your product or service on the radar. The marketing strategy will determine if that Spanish-speaking population will be decisive in the business escalation that your company intends to achieve.
However, there are other tools to determine which state is the best fit for your company. Today we will talk about the Tax Foundation's State Business Tax Climate Index, published in 2022, which allows business leaders, government policymakers and taxpayers to evaluate how the tax systems of the states in the United States compare. This will allow, we insist, in making the right decisions: intelligent and consensual about the internationalization and success of your company in the USA.
First, let's look at the report's ranking of the best states and the ten lowest-ranked states:
The absence of a major tax, the report says, is a common factor among many of the 10 top-ranked states. Property and unemployment insurance taxes apply in all states, but there are several that dispense with one or more of the major taxes: corporate, individual and state sales income taxes.
Nevada, South Dakota, and Wyoming have, for example, no corporate or individual income taxes (although Nevada imposes gross receipts taxes); Alaska has no state-level individual income or sales tax; Florida and Tennessee have no individual income tax; and New Hampshire and Montana have no sales tax.
However, it is important to understand that there are states, such as Indiana and Utah, that rank in the top 10 that, for example, impose all major types of taxes, but do so at low rates.
Relative to the bottom 10 in the ranking there are a number of afflictions in common: complex, non-neutral taxes with high rates. New Jersey, for example, has the highest property tax burdens in the country, has the highest corporate income taxes and one of the highest individual income taxes in the U.S. In addition to that, it has a particularly aggressive treatment of international income, imposes an inheritance tax and maintains some of the worst structured individual income levies, the report says, in the country.
This is what the U.S. tax climate looks like on the map:
We chose the 5 top-ranked states according to the index:
Let's start by explaining that Wyoming has no individual income tax; no corporate income tax; a state sales tax of 4% (Sales Tax), a top local sales tax rate of 2%, and an average combined state and local sales tax rate of 5.22%. That is why it ranked first in the ranking.
South Dakota has no individual income tax; neither does it have a corporate income tax; its state sales tax rate is 4.50%, a maximum local sales tax rate of 4.50% and an average combined state and local sales tax rate of 6.40%.
Alaska does not have an individual income tax; it has a corporate income tax rate ranging from 2 to 9.40%; it does not have a state sales tax, but has a maximum local sales tax rate of 7.50% and an average combined state and local sales tax rate of 1.76%.
Florida does not have an individual income tax; it has a corporate income tax of 5.50%; and a state sales tax rate of 6.00%, a maximum local sales tax rate of 2% and an average combined state and local sales tax rate of 7.01%.
Montana has a graduated individual income tax, with rates ranging from 1 to 6.75 %; in addition, it has a corporate income tax rate of 6.75 %; and it does not have a state sales tax and does not charge local sales tax.