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10.28.22 – (The Center Square)

Arkansas improved its business tax climate over the past year, a new tax study suggests.

But reductions in corporate and individual income tax rates have not been enough not to move The Natural State out of the ten worst states in the nation for business taxes, according to the Tax Foundation’s 2023 State Business Tax Climate Index.

Arkansas received an overall ranking of 40th in the nation based on its corporate, individual, sales, property and unemployment insurance taxes. The state was able to pull its ranking up from 43rd in the 2022 index.

“Like many states, Arkansas adopted both corporate and individual income tax rate reductions,” the study said. “In Arkansas’s case, these rate reductions – to a top individual income tax rate of 4.9 percent, down from 5.9 percent, and a corporate rate reduced from 6.2 to 5.9 percent – went into effect for the 2022 tax year. The corporate income tax rate reduction also resulted in the consolidation of an existing bracket. These changes were the primary driver of the state’s improvement.”

Arkansas’s sales taxes were still ranked at being the 45th worst in the nation, according to the report.

“Arkansas has a 6.5% state sales tax rate, a max local sales tax rate of 6.125% and an average combined state and local sales tax rate of 9.47%,” the report said.

Ranked below Arkansas were Alabama, Rhode Island, Hawaii, Vermont, Minnesota, Maryland, Connecticut, California, New York, New Jersey and the District of Columbia.

The Tax Foundation’s index is an annual comparison of the states and offers a way for state leaders, entrepreneurs, and taxpayers a way to weigh each state in terms of its business competitiveness.

“Tax competition is an unpleasant reality for state revenue and budget officials, but it is an effective restraint on state and local taxes,” the report said. “When a state imposes higher taxes than a neighboring state, businesses will cross the border to some extent. Therefore, states with more competitive tax systems score well in the Index because they are best suited to generate economic growth.”

Kim Jarrett.

Kim Jarrett

Associate Editor

Kim Jarrett’s career spans over 30 years with stops in radio, print and television. She has won awards from both the Georgia Press Association and the Georgia Association of Broadcasters.