Alaska’s Tax Climate, Ranked

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The Tax Foundation recently released the 2020 State Business Tax Climate Index, which ranks every state according to the burden of various taxes on their economies. Alaska’s overall score was third in the nation, largely due to having no individual income tax and no state-level sales tax. However, the Index shows room to improve Alaska’s corporate tax rate, property taxes, and unemployment insurance tax rate to be more competitive. The results of the Index underscore how critical the lack of an individual income tax is in attracting new businesses and generating economic growth.

The Index evaluates five taxes (individual income, sales, corporate income, property, and unemployment insurance) on a relative scale from 0.0 to 10.0, including 124 variables in total. Each factor is weighted based on the variability of the 50 states’ score from the mean; this means that the factors with the greatest variability between states—and therefore the most influence on business decisions—make up a larger proportion of the rank. The weights are reported in the table below, along with Alaska’s rank and score for each factor.

Alaska ranks third overall, behind Wyoming (first) and South Dakota (second). Our individual income tax ranks first with a perfect score, tying with several other states that also lack an individual income tax. Because this score comprises 30.2 percent of the overall index score, Alaska’s economic competitiveness is considerably enhanced by not levying an individual income tax. The most important lesson for policymakers from the Index report is not taxing individual income can boost a state’s economy dramatically; conversely, taxing individual income can significantly harm a state’s economy.

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