Report ranks Iowa tax climate among worst

Iowa's business tax climate is among the worst in the nation, according to a report released Tuesday, which looked at the state's tax system and economy.

The report, released by the Future of Iowa Foundation, the Iowa Tax Payers Association and the Tax Foundation, said Iowa ranked No. 40 out of 50 states for its tax climate because it has a narrow tax base with high rates.

The Iowa Taxpayers Association is a business-sponsored tax policy organization while the Tax Foundation is a non-partisan research think tank based in Washington, D.C.

Iowa, with a corporate income tax rate of 12 percent, scored better than Minnesota and Wisconsin's tax codes, which ranked No. 47 and No. 43, respectively. But the report found that some of the state's other neighbors including Missouri, Indiana and South Dakota did better.

'You don't need to be No. 1 to succeed,” said Joe Henchman, vice president of state projects for the Tax Foundation during a conference call with reporters on Tuesday morning. 'But there is regional competition.”

South Dakota does not have a corporate income tax and Indiana's corporate income tax rate will decline from 8.5 percent to 4.9 percent over the coming years.

The report also looked at Iowa's sales tax, which has tripled from 2 percent to 6 percent since it's creation in 1934. This is primarily due to the state's shrinking tax base as Iowa has seen a net loss of more than 60,000 people over the last 20 years, the report said.

'As the tax base erodes, there is more pressure to increase the rate to make up the revenue,” Henchman said.

The groups said they plan to use the information in the report to form a legislative agenda during an upcoming summit in August.

'It's necessary to have the facts to have a good debate on the future of the tax code,” Henchman said.