Why Tax Rates Aren't a Cure-All for Small Businesses
CHICAGO ( TheStreet) -- The political ads and fundraising calls may have disappeared (insert sigh of relief), but the key economic issues raised by the presidential election will continue to resonate for the foreseeable future. Small businesses' role in creating jobs was a much-repeated theme along the campaign trail, with politicians of both parties standing up as the champions of American entrepreneurs.
But what exactly can the government do to help a small business succeed? States can promote themselves as "business friendly" (as practically every state does), but what are the specific policies that encourage a start-up to grow?
A recently released survey of small-business owners conducted by Thumbtack.com, a website that connects service providers with customers, in collaboration with the nonprofit Ewing Marion Kauffman Foundation, offers some answers. Yes, many owners said they had been hampered by "government" in some way. But dig into the specifics, and it's clear tax rates don't play the outsized role that they did in political debates.
More than 6,000 Thumbtack.com service providers across the country, the majority of whom had five or fewer employees, answered a variety of questions about starting and maintaining a business in their state. The states getting the highest overall rankings were Idaho, Texas, Oklahoma, Utah and Louisiana; Rhode Island, Vermont, Hawaii, California, and New York ranked lowest.
But the really interesting data were collected from an open-ended question inserted in the middle of the survey: "Please let us know any experiences or thoughts you have regarding the ease of doing business in your state." The door was left open for complaints or compliments, and about 40% of respondents chose to answer.
Obviously, every business owner would be thrilled to pay less in taxes. But only 15% of the people who offered specific comments mentioned taxes at all, and those who complained their taxes were too high did not necessarily live in the states where the corporate tax rate was highest. Much more common were complaints about the complexity of the tax code, or the difficulties of navigating different local tax systems (sales tax, use tax, city and county taxes, etc.).
The takeaway? Business-wise, it can be an advantage to live in a state with no sales tax or no income tax. But the actual rate paid did not seem to be a top concern for most of the survey takers. Overall, what mattered more was that tax systems were easy to understand, with convenient (ideally online) payment systems,and easy-to-reach, knowledgeable support staff.
Consider, for example, the South Carolina Business One-Stop , a website that consolidates all the information and forms a small-business owner might need. In one place, you can change your address, order a license application, pay quarterly taxes and sign up for an educational webinar. It's no wonder South Carolina respondents praised their state's small-business environment. (By contrast, compare South Carolina's extensive, welcoming site with California's relatively bare-bones Small Business Assistance Center , a division of the California Tax Service Center).