The Tax Foundation, a Washington, DC-based think tank, has released its annual ranking of the “business-friendliness” of state tax systems, based on what it describes as “the taxes that matter most to businesses and business investment: corporate income, individual income, sales, property, and unemployment insurance taxes.”

Top slot on the State Business Tax Climate Index goes to South Dakota, which levies zero corporate or individual income tax.

Hmmm … South Dakota has been grabbing some very positive press recently for being relatively successful in staving off the economic gloom. Its unemployment rate in August was just 4.9 percent, the second lowest in the nation, according to this USA Today report. I’m not going to assert that there’s a full-blown causal connection here, but no doubt the mild tax climate is an added inducement for businesspeople who are thinking about setting up shop in the Mount Rushmore State. (Whether it’s enough to offset the actual climate, with those bone-chilling, minus-20 winters, is another matter.)

Two other zero-income-tax states — Wyoming and Nevada — won second and fourth place, respectively. Alaska took third place, despite a corporate income tax that the Tax Foundation describes as “particularly burdensome” — a weakness which was counterbalanced by the state’s lack of an individual income tax or statewide sales tax. Florida, another state with no individual income tax, rounds out the top five.

Here’s the rest of the top 10 most tax-competitive states:

6. Montana

7. New Hampshire

8. Delaware

9. Washington

10. Utah

And the 10 least competitive:

41. Vermont

42. Wisconsin

43. Minnesota

44. Rhode Island

45. Maryland

46. Iowa

47. Ohio

48. California

49. New York

50. New Jersey

Kail Padgitt, the report’s author, offers some thoughtful insights into the research in this background paper. Or for the full report, a sixty-page blockbuster, click here. ###