A new index prepared by the Virginia-based Small Business and Entrepreneurship Council ranks South Dakota first overall in the effect of its tax system on small business.
The state tied for first in three specific categories, including the effect of personal income taxes. South Dakota has no personal or corporate income tax.
North Dakota ranked 36th overall and 24th for personal income tax. Minnesota came in at 49th overall and 43rd for personal income tax.
"Taxes shift resources away from the private sector, distort economic activity and restrain economic growth," said Raymond Keating, the council's chief economist. Taxes are "especially painful in a down economy."
Dane Smith, president of Growth and Justice, a self-described progressive think tank based in the Twin Cities, countered that "studies that focus purely on tax rates provide a very narrow measure of the health of a society."
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Such rankings "will always show that low-tax states are better for business," Smith said. "But there's a wealth of more comprehensive measures that look at the health of a society through educational attainment, public investment in health and infrastructure and social justice. And these measures tend to show Minnesota as having one of the best business climates in the nation."
Bruce Gjovig, director and entrepreneurial coach at the UND Center for Innovation, agreed that "taxes are only part of" measuring a state's business climate.
"At the end of the day, all great companies are built on talent" and access to talent, he said. "Education also is a key. So are knowledge networks and good infrastructure."
In the small-business center's study, South Dakota tied with eight other states for best ranking for top capital gains tax and tied with four others for best corporate income tax rates.
Measuring state and local property taxes as a share of personal income, Minnesota ranks 18th, South Dakota 26th and North Dakota 28th, according to the study.
South Dakota Gov. Mike Rounds told The Associated Press on Friday that the state's high rankings were welcome and would help the state attract businesses that may be struggling in other states.
Reach Haga at (701) 780-1102; (800) 477-6572, ext. 102; or send e-mail to chaga@gfherald.com .
