State receives high business climate ranking

State chamber disagrees with Tax Foundation's findings

Posted: Monday, March 28, 2011

A new report from the Tax Foundation ranks Alaska as having the second-best business-friendly climate in the nation. However, some state business leaders think that ranking may not tell the whole story.

The report ranks the state number 2 in its overall state business tax climate index for 2011. The ranking is as of July 1, 2010.

The business tax climate index measures how the state’s tax laws affect its economic performance, taking into account the corporate, individual income, sales, unemployment insurance and property tax indexes.

“This report shows Alaska is open for business,” stated Sen. Hollis French, D-Anchorage. “In fact, the state ranks as having one of the most friendly business tax climates in America.”

However, officials in the Alaska State Chamber of Commerce say that the business climate here is not as rosy as this single number makes it out to be.

Chamber President and Chief Executive Officer Rachael Petro said the report doesn’t measure corporate taxes or consider worker’s compensation costs. She said Alaska, in fact, has one of the nation’s highest workers compensation costs, saying it is a real cost of doing business here. This was also a factor in a CNBC’s latest business climate report that shows Alaska in last place as a place to do business.

Petro also said it’s well known that overall taxes on the oil industry comprise nearly 90 percent of the state’s general fund, leaving only the remainder to be made up by other corporate taxes and income and sales taxes, as Alaska does not have either of these as statewide taxes, and also property and unemployment taxes.

“The bottom line is we’re not attracting investments to Alaska,” she said. “Businesses are constantly moving out of state, and it’s very discouraging. This is something that has to be changed.”

Chamber Board Chairman Kip Knudson also wants the business climate to improve, saying, “We’re not anywhere near the top.” He agreed with Petro’s explanation, saying that private sector investment is needed for the business climate, quite importantly in oil production due to the state’s 90 percent reliance on oil revenues. “Right now that investment picture is pretty grim, despite $100 barrel oil,” he said.

Knudson pointed out several discrepancies in the report itself, indicating that the second-place ranking may not be an accurate portrayal.

One of the most prominent of these discrepancies is the lack of explanation to where that number 2 overall ranking is achieved, as the five categories that are present with that ranking are as follows: number 26 for corporate taxes, number 1 for individual incomes taxes, number 5 for sales income taxes, number 31 for unemployment insurance taxes and number 12 for property taxes.

In comparison to this same table, he noted the Council on State Taxation’s total state and local business taxes report shows Alaska as being worst in the nation for both state and local business taxes as a percentage of all taxes and for percentage of private sector gross national product.

He noted other tables in the Tax Foundation’s report, like how Alaska’s FY 2009 state and local tax burden per capita was $2,973. He said the U.S. Census Bureau lists the 2007 – 2008 state and local taxes per capita burden as $14,147.

The table for FY 2008 sources of state and local tax revenue, percentage of total from each source, shows Alaska as second highest in corporate taxes with 10.1 percent. However the category for other taxes is at 76.7 percent, which Knudson notes is quite a large leap.

He also noted some other unexplained large leaps in rankings, like the FY 2009 state corporate income tax collections per capita were $912, putting the state at number one. But the second highest was New Hampshire with $373 per capita.

Alaska ranked highest again in FY 2008 state and local income tax collections per capita with $1,433 per capita. The second highest here was New York with only $583 per capita.

Adding to the skepticism on a high business ranking for the state are surveys from other organizations like CNBC and Forbes that place it among the worst for business.

CNBC’s report ranked in areas like costs of doing business, quality of life, workforce, transportation, infrastructure, education, access to capital, cost of living, business friendliness and technology and innovation. Knudson said it also considered regulatory burden and school performance.

“I have more faith in that broader look that what the Foundation has produced,” he said.

The survey’s author, Scott Cohn, has previously addressed the Chamber on why he ranked Alaska dead last for business. He told them that, among other things, the state’s higher wages, utility costs and workers compensation costs relative to the other states was a factor. The report also showed Alaska as having comparably harsher regulations and transportation issues.

On the other hand, Cohn pointed out that the state’s low taxes and high quality of life can be drawing factors for people looking here for new investment opportunities.

During this address, a business leader rebuttal was that such rankings in national surveys that go across the board are not fully representative, as some areas of states do better or worse than others.

“The dilemma with all of these rankings is they’re all hopefully using the same data but are different in how they put them all together,” said Knudson.

• Contact reporter Jonathan Grass at 523-2276 or jonathan.grass@juneauempire.com.





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