Business Climate and Economic Conditions

WHAT MAKES FOR AN IDEAL BUSINESS LOCATION? IT HELPS TO KNOW THE BASICS.

Writing for the Economic Policy Institute back in 2005, Peter Fisher explored the relationship between business-oriented public policy and rankings purporting to gauge the business friendliness of hugely diverse cities and states.

For the eight groups then producing high-visibility rankings each year, Fisher’s book, “Grading Places,” was not a flattering portrayal. Things have only become more complicated since then, with an explosion of click-bait Web sites’ “Best Cities for …” rankings that attempt to compare everything from corporate tax rates to barbecue.

Because organizational agendas drive each ranking set, Fisher argued, they were inherently biased or misleading, and largely irrelevant to business decision-makers. And, he concluded, “they should be ignored by policy-makers for the same reason.”

So when it comes to ranking states on their business friendliness, it all depends on whom you talk to. Or read. Or listen to. Better, then, to explore some underlying metrics. And when it comes to Missouri and Kansas, some of those numbers are quite flattering. Some, lesser-so.

But it helps to start with where we are as a region. Look at these baseline numbers, according to state revenue department Web sites and the Tax Foundation:

Sales taxes. Missouri has a statewide base sales tax of 4.225 percent; in Kansas, it is 6.5 percent. Because most every municipality (and school, sewer, water, fire or library district, etc.) has its own sales-tax levy, you can find thousands of permutations. Taken as a whole, the city and state sales taxes average 8.03 percent in Missouri (14th-highest nationwide) and 8.68 percent in Kansas (8th-highest).

Corporate income taxes. Missouri has a flat 6.5 percent levy on taxable income, lower than 29 other states. Kansas starts at 4 percent, but for those with income above $50,000, the rate will rise to 7 percent. That puts it in a tie for 20th-highest nationwide.

Individual income taxes. Kansas has
three brackets—3.10 percent, 5.25 percent, 5.7 percent, with the highest marginal rate applying to income above $30,000 for individuals, and $60,000 for married filing jointly. Missouri is more complex, with 10 brackets, with the highest rate—5.9 percent—attached to anything over $9,072 (whether for individuals or joint filers).

Property taxes. Kansas has a 1.5-mill levy, or $1.50 for every $1,000 of a property’s assessed valuation, and a 20-mill levy to finance schools, a total of $21.50 (local property tax levies will increase the load in each state). Missouri starts at xxxx.

A key element that is measurable relative to other states is the tax burden for businesses on the corporate and individual levels. The Tax Foundation, in its rankings of states based on policy updates in 2017, moved Missouri up one spot to No. 16, and Kansas down a spot, to 23rd.

Rankings for Missouri and Kansas are in the accompanying chart, but all told, they gave Missouri three Top 10 finishes in those five categories, helping nudge it one place up the 50-state rankings.

But business taxes alone don’t tell the whole story, as health-policy gurus have often pointed out. The Show-Me State has the lowest cigarette tax in the nation, at 17 cents a pack; compare that with the highest levy, $4.35 a pack, in New York. The 6-cent gallonage tax on beer also was the nation’s lowest. Advocates for higher taxes to curb consumption say both of those factors contribute to social ills that impose hidden costs on business.

In Kansas, individual income taxes shot back up when the 2017 Legislature overrode a gubernatorial veto and imposed the largest package of tax increases—$1.2 billion worth—in the state’s history. For individual income taxes, the 4.6 percent top rate adopted in 2012 was boosted to 5.2 percent, an increase of 15.3 percent, and a new bracket was created. Still, the state’s rates remain lower than they were before the 2012 cuts that became the focus of tax-policy discussions nationwide. Lawmakers also clawed back an exemption for pass-through income, a move the foundation said “improves the neutrality of the state’s income tax code.”

The changes from Topeka dropped the state three spots in the foundation’s 2018 ratings, tied for the biggest decline nationwide with Pennsylvania.

A statistic of some note to companies with large fleets of vehicles is the gasoline tax. There, Missouri’s 17-cent levy is fourth-lowest in the country, while Kansas is right in the middle, No. 25, at 24.03 cents per gallon.

If, after all that, you still find comfort in a business-climate ranking index, you can always turn to organizations that focus more on business than policy, and understand it from that perspective.

Take, for example, the Forbes annual index of Best States for Business, which bases its ratings on a matrix of six business factors—business costs, labor supply, regulatory burden, economic climate, growth prospects and quality of life. Both states always rank very high.