Washington, DC - Arizona has the 21st most competitive tax code in the nation according to the 13th annual State Business Tax Climate Index, released this morning by the nonpartisan Tax Foundation. The report measures how well-structured each state’s tax code is by analyzing over 100 tax variables in five different tax categories: corporate, individual income, sales, property, and unemployment insurance.

The breakdown of Arizona’s rankings this year is as follows (1st is best, 50th is worst):

  • Overall tax climate: #21
  • Corporate tax structure: #19
  • Individual income tax structure: #19
  • Sales tax structure: #47
  • Property tax structure: #6
  • Unemployment insurance tax structure: #13

This year’s most competitive states include:

  1. Wyoming
  2. South Dakota
  3. Alaska
  4. Florida
  5. Nevada
  6. Montana
  7. New Hampshire
  8. Indiana
  9. Utah
  10. Oregon

This year’s least competitive states include:

  1. Louisiana

  2. Maryland

  1. Connecticut

  1. Rhode Island

  1. Ohio

  1. Minnesota

  1. Vermont and D.C.

  1. California

  1. New York

  1. New Jersey

States are penalized for overly complex, burdensome, and economically harmful tax codes and rewarded for transparent and neutral tax codes that do not distort business decisions. A state’s ranking can rise or fall significantly not only because of its own actions, but also because of reforms made in other states.

“Our goal with the State Business Tax Climate Index is to start a conversation between taxpayers and policymakers about how their states fare against the rest of the country,” said Tax Foundation Policy Analyst Jared Walczak. “While there are many ways to show how much a state collects in taxes, the Index is designed to show how well states structure their tax systems, and to provide a roadmap for improvement.”

The Index can also be used as a tool for identifying state tax trends. For instance, the report shows that a number of states are now opting to simplify their tax systems by consolidating individual income tax brackets, or even moving to a flat tax. Hawaii eliminated its top three individual income tax brackets in 2016 and reduced its top marginal rate from 11 to 8.25 percent, improving its overall rank from 30th to 27th. North Carolina moved to a flat individual income tax in 2014 and continues to phase in rate reductions, building on the success of its historic 2013 reforms and shoring up its place at 11th overall.

Another trend is the tendency for states to shift away from taxes on capital. Pennsylvania, for example, has now completely phased out its capital stock tax, boosting its property tax component ranking six places, from 38th to 32nd, and improving its overall state ranking from 28th to 24th.

“Substantive state tax reform has gained a lot of momentum over the past few years,” said Tax Foundation Director of State Projects Scott Drenkard. “The stagnation of our federal tax code means that policymakers are turning to state codes to boost their national and global competitiveness. The state codes are ripe for reform and it’s encouraging to see so many states taking action.”