2027 State Tax Competitiveness Index: Rankings and Analysis

State Tax Competitiveness Index Ranks How 50 States Structure Tax Codes

How state governments structure their tax codes matters far beyond simple revenue collection, according to the Tax Foundation’s 2027 State Tax Competitiveness Index. While tracking total tax collections misses the mark, evaluating more than 150 variables across individual income, corporate, sales, property, and unemployment insurance taxes exposes how well state systems support economic growth and business competitiveness. As fedlaws.org notes, the Index measures structural design rather than whether a budget balances, scoring states from 1 to 50 on how simple, neutral, and broad their tax bases remain.

Individual income taxes carry the heaviest weight in the Index at 31.8 percent, followed by sales and excise taxes at 21.2 percent, corporate taxes at 21.1 percent, property and wealth taxes at 14.5 percent, and unemployment insurance taxes at 11.4 percent. Because states compete heavily against each other in a national economy, minor shifts in statutory rates or base-narrowing deductions can cause dramatic swings in state rankings.

Notable Risers and Fallers in the 2027 Rankings

Utah climbed seven spots to 8th overall, improving its corporate tax component. The state also conformed to pro-growth provisions of the Omnibus Budget Reconciliation and Tax Reform Act (OBBBA), restoring first-year expensing for manufacturing machinery, equipment, and research expenses.

Missouri similarly cracked the top 10, jumping three spots to 9th overall. The state benefited by conforming to new expensing provisions while explicitly resisting exemptions for tipped and overtime pay—a policy trap that caught several neighboring jurisdictions.

On the other side of the ledger, Idaho dropped four spots to 13th overall, sliding eight places on the individual income tax component alone. That decline stemmed primarily from Idaho’s decision to conform to temporary individual deductions for tips and overtime, which the Tax Foundation report indicates costs substantial state revenue without generating meaningful economic growth.

Michigan suffered an even steeper drop, falling nine places from 16th to 25th overall. The state declined to adopt improved federal expensing provisions, paired them with a new exemption for tipped and overtime income, and maintained a comparatively low Section 179 limit.

Structural Design Versus Gross Collections

States score best when their codes pair broad tax bases with low, flat rates and minimize economic distortions. Gross receipts taxes, imposed instead of corporate income taxes in states like Nevada, Ohio, Texas, and Washington—and levied on top of corporate taxes in Delaware, Oregon, and Tennessee—create tax pyramiding. By taxing total revenue at every stage of production rather than final consumer sales, those levies hit low-margin businesses hardest and raise effective tax rates well above statutory levels.

Similarly, property and wealth taxes that penalize tangible personal property, machinery, and inventory raise the cost of business expansion. Meanwhile, unemployment insurance tax bases vary widely across the country, running from $7,000 in some states to over $60,000 in others.

Because these rankings are relative scores where 0 is worst and 10 is best, a state’s standing can shift even when its own laws remain completely untouched. When a competing state enacts reforms, it moves the curve for everyone else.