New Jersey Ranks 49th in the Nation in the 2008 State Business Tax Climate Index
Source: 2008 State Business Tax Climate Index by the Tax Foundation
Index scores range on a scale from 0 (worst) to 10 (best) with 5 being the US average

* See below for a commentary on how these statistics can affect your business

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New Jersey Ranks as the 2nd Worst State in the 2008 State Business Tax Climate Index

For the third year in a row, the Tax Foundation has ranked New Jersey in the bottom four states in the nation in their annual State Business Tax Climate Index. Accompanying New Jersey at the bottom of this ranking are other Northeastern states like Maine (41st), Vermont (44th), New York (48th), and Rhode Island (50th). Our two other neighboring competitor states, Pennsylvania (27th), and Delaware (9th) performed significantly better than NJ.

The Tax Climate Index measures each state’s attractiveness to new businesses, and their ability to generate economic and employment growth. The index measures each state’s business tax climate as it stands at the beginning of the standard state fiscal year which is July 1. The index rates each state on a scale of 0 (worst) to 10 (best). This year, New Jersey was given an index score of 3.88, which was a .22 decrease from last years score of 4.10. Due to our decline, the largest decrease among the 50 states, and other state's improvements, New Jersey fell from 47th in the nation to 49th. NJ was 27.61 percent below the 50-state average.

To derive these index numbers, the Tax Foundation uses five component sub-indexes, each of which has two equally weighted sub-indexes and a number of variables under them which measure a major area of state taxation. Unlike many other indexes, the five component indexes are not weighted equally, but instead each is weighted based on the variability of the 50 states’ scores from the mean. This causes a heavier weighting of those component indexes with greater variability. The five component indexes and their weights are as follows: the Individual Income Tax Index (29.15 percent), the Sales Tax Index (21.50 percent), the Corporate Tax Index (19.43 percent), Property Tax Index (15.72 percent), and the Unemployment Insurance Tax Index (14.20 percent). Scores on these five major components must be normalized to bring the average score for all of them to 5.00, allowing the states to be compared across all the indexes.

Each of the five component indexes has two sub-indexes which are composed of one or more variables. Since the 2009 State Tax Climate Index is a relative index, each variable is ranked relative to the variable's range in other states. So on a scoring scale from 0 to 10, 0 would not mean worst possible but worst among the 50 states. States with no tax in a given component index receive an automatic score of 10, and the index will then measure all the other states against each other

The importance of the State Business Tax Climate Index is that it allows policymakers to pinpoint areas in their states’ tax systems that need improvement, so that the state can function more competitively with other states in attracting new businesses, as well as preventing businesses from relocating to other states. New Jersey currently ranks 49th in the nation due to high rankings in the Corporate Tax Index, the Individual Tax Index, and the Property Tax Index. The State is relatively average in the Sales Tax Index and Unemployment Insurance Index when compared to other states. In order to be more competitive on a national level, New Jersey must strive to create a tax system that does not inflict excessive taxes on business activity, so that profits are not diminished and businesses do not have to raise prices, lower wages of employees, or cut the value of dividends or shares for shareholders.

Source: 2008 State Tax Climate Index, The Tax Foundation.