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By Steve Bittenbender

The Center Square

A new study found Kentucky to be in the middle of the pack regarding the tax environment for small businesses.

SimplifyLLC, which produces guides for helping people start and operate small businesses, evaluated data on all 50 states and the District of Columbia. The Bluegrass State ranked 26th nationally.

The study looked at five key taxes – corporate, personal income, sales, property and unemployment – to rank the states.

The rankings also seem to indicate Republicans in the Kentucky General Assembly may be on the right track as they work to potentially eliminate the state’s income tax. None of the top five states in SimplifyLLC’s rankings – Nevada, South Dakota, Washington, Wyoming and Texas – have corporate or personal income taxes.

“Our analysis found that states with no or low personal and corporate income taxes are the most tax-friendly for small businesses, even when they have higher taxes for property, sales and unemployment compared with other states,” the report stated.

In 2022, Kentucky lawmakers passed a law, over Gov. Andy Beshear’s veto, that allows the state to reduce its personal income tax by half a percentage point if certain economic metrics are reached. The state cut the income tax from 5% to 4.5% this year, and a 4% tax has been approved for next year.

State budget officials have notified lawmakers the state did not meet the 2022-23 fiscal year criteria to cut taxes to 3.5% in 2025.

Kentucky does have one of the highest maximum tax rates for unemployment insurance in the nation. Only 12 states have top rates higher than Kentucky’s 9%.

The state does better in sales taxes as its 6% rate is 38th nationally. That includes states where localities can add their own sales tax. Kentucky does not allow that, although there has been talk about such a proposal.

Two of Kentucky’s neighbors, Missouri and Ohio, placed eighth and ninth, respectively. Tennessee and Indiana also finished 18th and 19th. Virginia ranked 32nd, West Virginia 34th and Illinois 42.

While Nevada took home top honors in the rankings, New Jersey finished last, with SimplifyLLC noting the Garden State’s combination of high rates for property, sales, corporate and income taxes sinking it to the bottom.