New Jersey often plays second fiddle to neighboring New York, but a new survey of the 50 U.S. states shows the Garden State bested New York in having the least favorable tax climate for business.

It's the second consecutive year New Jersey has finished dead last, according to the 2010 State Business Tax Climate Index released this week.

How does New Jersey do it? In addition to having the country's highest property taxes and among the highest individual and corporate income taxes, New Jersey implemented a number of new taxes this year that hurt its overall score, said the nonprofit Tax Foundation, a tax research group that has prepared the report since 2003.
The index measures the competitiveness of the 50 states' tax systems and ranks them based on taxes that matter most to businesses and business investment: corporate income, individual income, sales, property and unemployment insurance.

At No. 49, New York has nothing to crow about. The state finished 50th in taxes on personal income, according to the index. It also has among the nation's highest property and unemployment insurance taxes. The high cost of doing business in New York has long led local business leaders to champion reforms and reduced taxes.

Among those is Al Samuels, president and CEO of the Rockland Business Association in Pearl River, N.Y. In a recent letter to members, Samuels railed against state lawmakers' plan to increase spending in next year's budget by nine percent, or $10.5 billion through "an array of new taxes on business." Samuels was responding to a similar ranking by Chief Executive magazine, which also showed New York as the second worst state in which to do business. Chief Executive's index uses broader measures than the Tax Foundation, such as workforce quality and living environment.

From what Samuels could gather from the new budget, he said, "there isn't a single initiative or component that will create a single job in New York state." Further, the bill contains no incentives to induce companies to remain in or relocate to the state.

In addition, New York has implemented a new tax on employers and self-employed workers who live in New York City and seven surrounding suburban counties to help rescue the region's transportation authority from a $1.2 billion shortfall in the agency's budget through 2014. It is the implementation of such taxes, Samuels fears, that will make New York "the best of the worst" in future rankings.

Following New Jersey and New York at the bottom of the Tax Foundation index is California, at No. 48. Next in line are Ohio, Iowa, Maryland, Rhode Island, Minnesota, Wisconsin and Vermont.

South Dakota ranked No. 1 with most "business friendly tax system," followed by three other Western states -- Wyoming, Alaska and Nevada. Florida placed fifth, succeeded by Montana, New Hampshire, Delaware, Washington state and Utah, the Tax Foundation said.

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