New York state recently ranked second-to-last in the nation for its tax code effectiveness, which is measured in five ways by the State Business Tax Climate Index.

The state has the 49th-most competitive tax code out of the 50 states in the U.S. — only beating New Jersey, according to the Tax Foundation’s report. This is also the fourth consecutive year that the state has held this ranking, according to the Syracuse New Times.

The ranking of each state determines how sound a state’s tax framework is, which affects its overall competitiveness with other states. The purpose of the index is to create conversations between policymakers and taxpayers in order to spur future change in the state tax codes, according to a press release by the Tax Foundation.

States are judged by a system that analyzes more than 100 tax variables within five different categories. One way that the structures are ranked is by measuring the tax codes that are complex and burdensome, which will receive lower scores, while the more efficient and transparent tax codes receive higher scores, according to the release.

New York state currently lags behind in the categories of unemployment insurance tax structure (No. 32), sales tax structure (No. 42), property tax structure (No. 47) and individual income structure (No. 49), according to the index. The corporate tax structure ranks the highest amongst these at No. 12, according to the index.

John Petosa, a professor of accounting at Syracuse University’s Martin J. Whitman School of Management, said there is a difference in rankings between the corporate tax structure and other tax structures because New York state derives a lot of revenue from corporations.

Petosa added that although New York City comprises much of New York state’s corporate climate, policymakers need to take into consideration the rest of the district, such as Albany, Rochester, Syracuse and Binghamton, to earn the favor of the rest of the state taxpayers.

Petosa said the recent reform to lower the corporate tax may encourage businesses to move to New York, but he added that taxpayers have to pay attention to what services the government is providing, if it has the opportunity to reduce unnecessary spending and who that would affect.

Keeping variables like this in mind, Petosa said, can affect residents’ decisions to stay or leave the state due to the costs that come from taxes.

He said another fundamental issue is fairness, which differs for taxpayers.

For instance, some taxpayers believe that a flat tax is the fairest, whereas others may believe that an individual should be taxed more if they make more money, Petosa said.

David Harris, an accounting professor and director of the George E. Bennett Center for Accounting at Whitman, criticized the report in an email. He said there are missing components to the report.

Harris said the report is slanted by a conservative lean and that it treats progressive taxation as “anti-competitive.” He added that ambiguous societal structures can complicate the implications of the index, and questioned what the value of social justice is in the progressive tax.

“Without balancing the value of tax expenditures against the economic costs of tax collection, this analysis is biased, at best, and seriously distorted, at worst,” Harris said.

Published on December 2, 2015 at 9:29 pm

Contact Tara: trtolton@syr.edu