State and local taxes represent a substantial business cost for corporations operating in the United States.  Although the globalization of commerce and international competition both play a role in economic development for states, most sizeable job relocations are from one state to another.  It is important for business leaders and lawmakers to know how their states' tax systems compare, and make decisions accordingly.

The Tax Foundation recently published the 2012 State Business Tax Climate Index.  It is a comprehensive state-by-state analysis of tax burdens throughout the country.  The index not only includes each state's corporate income tax structure, but also uses individual income taxes, sales taxes, unemployment insurance taxes and property taxes. With complex methodology, the index uses these tax rankings, which are assigned various weights of importance, to determine the overall business tax climate index.  This system of measurement allows for a comparative, detailed assessment of the tax environment in each state.  According to the Tax Foundation:

"In reality, tax-induced economic distortions are a fact of life, so a more realistic goal is to maximize the occasions when businesses and individuals are guided by business principles and minimize those cases where economic decisions are influenced, micromanaged, or even dictated by a tax system. The more riddled a tax system is with politically motivated preferences, the less likely it is that business decisions will be made in response to market forces. The Index rewards those states that apply these principles."

The map below, which can be found in the report, shows the 2012 business tax climate index by state. The higher the score, the more favorable a state's tax structure is for business.  As you can see, Alabama ranked 20th on the business tax climate index.  States surrounding Alabama received a range of rankings.  Georgia, with a ranking of 34th, came in behind Alabama, while Tennessee (14th) and Mississippi (17th) both exceeded us.  There are many factors that can affect a state's tax climate.  The absence of a major tax can obviously improve a state's ranking.  That can be seen with Tennessee, which does not have an individual state income tax.