followed by sales tax (27th), individual income tax (36th) and unemployment insurance tax (39th).
“Our income tax, for example, is something that always comes up in discussions with companies,” said Patel. “You ask what are we trying to do with our income tax rate?”
Despite South Carolina’s mediocre performance, there may be reason for hope for the future. Last year lawmakers passed a bill to revise the state’s business tax tax system that will reduce paperwork time, reduce confusion and increase productivity when it comes into effect next year.
While Palmetto State lags significantly behind North Carolina, Tar Heel state was in a similar situation not long ago, according to Katherine Loughead, a senior policy analyst at the Center for State Tax Policy at the Tax Foundation, who helped create the profile of South Carolina contributed.
“A decade ago, North Carolina was in a similar position to South Carolina today, but many improvements have been made since then, and today North Carolina is recognized as a leader in structuring tax law,” she said.
The tax foundation uses 120 variables to create its ranking. Because some of the variables change over time, it’s not possible to make an apple-to-apple comparison with North Carolina in 2011 and South Carolina today, Loughead said.
“While there is a considerable difference between the two states today, it is entirely possible for South Carolina to make changes and make up ground,” she added.
There are several factors affecting the South Carolina’s business tax climate, including:
The Palmetto State has some of the highest individual income tax rates for middle- to high-income earners in the Southeast. And the state’s individual income tax rate of 7 percent starts at a relatively low level, starting at $ 15,400.
The so-called marriage penalty hurts couples in the state. A married couple who submits together must expect a higher rate than if the couple submits individually. This is because the highest tax rate starts at $ 15,400, which means that more of a couple’s income will be taxed at the highest level than would be the case if the couple were filed separately.
Machinery used in business manufacture is subject to relatively high property taxes in South Carolina. Because the state treats different classes of property differently, business ownership bears a greater share of the burden. Without a uniform assessment, the tax code discourages investments in machinery.
The state’s unlimited capital stock tax is burdensome as companies must pay a tax on their net worth every year.
“South Carolina should focus well on lowering individual income and property taxes and cleaning up outdated guidelines,” Loughead said.
While South Carolina has a relatively low corporate tax rate of 5 percent flat, North Carolina’s is still lower, making the former even more competitive.