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Wyoming and Montana make the top five in Tax Foundation’s 2024 State Business Tax Climate Index

Updated: Nov 28, 2023

The Tax Foundation has released its 2024 State Business Tax Climate Index. The Mountain States led the way with Wyoming ranking 1, Montana 5, and Idaho 16. Washington came in a distant 35. According to the report:

“The Tax Foundation’s State Business Tax Climate Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how well states structure their tax systems and provides a road map for improvement.”

Here are the Mountain States rankings by tax type:

The report highlights recent tax changes in Idaho and Montana:

Idaho: “In January 2023, Idaho moved to a flat individual income tax structure, consolidating four brackets with a top marginal rate of 6 percent into a single rate of 5.8 percent while also reducing its corporate income tax rate to 5.8 percent. This was enough to improve Idaho’s individual tax component ranking by two places, but Idaho’s overall ranking fell by one due to Arizona improving from 19th to 14th.”

Montana: “Montana was among the states to enact individual income tax cuts in 2021, reducing the top marginal rate from 6.9 percent in 2021 to 6.75 percent in 2022 and scheduling a future reduction, along with bracket consolidation and other structural reforms, for 2024. Originally, the 2021 law converted Montana’s seven marginal rates into two, with rates of 4.7 and 6.5 percent, effective in 2024. However, in March 2023, S.B. 121 was enacted, reducing the top marginal rate even further—to 5.9 percent—beginning in 2024. Although the lowest rate will rise to 4.7 percent in 2024, conforming to the federal standard deduction in 2025 will yield tax savings for lower-income taxpayers. This law also doubles the bracket widths for married filers, thereby removing the marriage penalty that currently exists in the state’s income tax code. These reforms will yield a favorable ranking change.”

The Tax Foundation encourages lawmakers to remember two important tax rules:

  1. “Taxes matter to business. Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), shareholders (through lower dividends or share value), or some combination of the above. Thus, a state with lower tax costs will be more attractive to business investment and more likely to experience economic growth.

  2. States do not enact tax changes (increases or cuts) in a vacuum. Every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its region, and even globally. Ultimately, it will affect the state’s national standing as a place to live and to do business. Entrepreneurial states can take advantage of the tax increases of their neighbors to lure businesses out of high-tax states.”

Taxes are one of the ways states compete with each other in our federalist system. As evidenced by recent changes in the State Business Tax Climate Index, this competition is alive and well in the Mountain States.

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