Rankings can be very subjective, but they are still captivating. Everyone has an opinion of what they think is the best movie or song. As a Baby Boomer, I remember for years listening to a local station’s Top 500 classic rock and roll rankings to see if “In the Still of The Night,” was still ranked No 1.

So with this love for rankings, why not rate the states to see which are the best and worst at tax administration? The Council on State Taxation (COST), a nonprofit trade association of nearly 600 multi-state companies, did exactly that. What was particularly nice was that the ranking wasn’t based on voting by COST members, which would have been very subjective approach. Instead, objective criteria were utilized. With regard to procedural elements, COST evaluated whether the state has:

  • Even-handed statutes of limitations;
  • Equalized interest rates;
  • Adequate time to file a protest;
  • A due date for corporate income tax returns at least 30 days before the federal due date; and,
  • An automatic extension of the state return due date based on the federal extension.

As to the appeal process, COST looked at the following two criteria: (1) whether there was an independent non-judicial forum, and (2) access to an independent tribunal without a prepayment requirements.Rather than relying on anecdotal experience, each state’s specific regulatory requirements and appeals procedures were used and applied comparatively on a state-by-state basis. For companies operating interstate, it is important that state tax laws don’t unfairly impede their operations. Detailed study and rankings like this based on stated objective standards will hopefully help in highlighting the problem and encourage states to modify their procedures, and thereby improve their grades.
Now for those interested in which states are ranked the best and the worst. Alaska, Arizona, Hawaii, Idaho, Iowa, Montana, South Carolina, and Virginia all got an “A.” The states with the lowest grades were North Carolina (D-), Connecticut (D), Louisiana (D), Rhode Island (D), Alabama (C-), California (C-), and Texas (C-).

For a copy of the report, "The Best and Worst of State Tax Administration: Scorecard on Tax Appeals & Procedural Requirements," and to see where your state ranks, go to www.statetax.org/COSTHome.cfm.

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