Maryland Association of CPAs

South Dakota has the most business-friendly tax system and New Jersey has the least, according to the Tax Foundation’s 2010 State Business Tax Climate Index.

The Index measures the competitiveness of the 50 states’ tax systems and ranks them accordingly based on the taxes that matter most to businesses and business investment: corporate income, individual income, sales, property and unemployment insurance taxes.

The states are scored on these taxes, and the scores are weighted based on the relative importance or impact of the tax to a business.

Keeping a state competitive in today’s global marketplace can be difficult, but there is one factor lawmakers have direct control over: the quality of state tax systems. The Index measures how well a state’s tax system encourages investment by maintaining a broad tax base and low rates.

“When policymakers are considering tax changes in their states, they should remember two rules: Taxes matter to business, and states do not enact tax changes — increases or cuts — in a vacuum,” said Kail Padgitt, Ph.D., who authored Tax Foundation Background Paper No. 59, “2010 State Business Tax Climate Index.” The Index represents the tax climate of each state as of July 1, 2009, the first day of the standard 2010 fiscal year.

The top 10 states in the 2010 Index, from first to 10th, are South Dakota, Wyoming, Alaska, Nevada, Florida, Montana, New Hampshire, Delaware, Washington and Utah.

The bottom 10 states, from 41st to 50th, are Vermont, Wisconsin, Minnesota, Rhode Island, Maryland, Iowa, Ohio, California, New York and New Jersey.