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September 26, 2018 12:12pm

Kentucky moves up in national business tax climate rankings

In the Tax Foundation’s just-released 2019 State Business Tax Climate Index, Kentucky moved from 33rd in the nation in the 2018 index to 23rd in the 2019 index, jumping ahead 10 spots and coming much closer in line with our neighboring states.* The Commonwealth’s increased competitiveness is a direct result of tax reform legislation supported by GLI in the 2018 legislative session. “Kentucky adopted revenue-positive tax reform which increases tax collections (primarily to address unfunded pension liabilities) while improving the overall tax structure,” the report states.

Within Tax Foundation’s metrics, Kentucky improved the most in the individual income tax category, where it moved from 29th to 17th. One of the key changes implemented by tax reform legislation in 2018 was to collapse the Commonwealth’s six-bracket individual income tax rate into a single rate of 5 percent. The three-bracket corporate tax rate was also condensed into a single rate of 5 percent, though Kentucky’s ranking in the corporate income tax category remained the same as last year at 27th.

When tax reform was initially passed by the legislature in April, the Tax Foundation stated that the reforms would move Kentucky from 33rd to 18th. That assessment, however, was in the context of the 2018 rankings and did not take into account tax-related measures passed by other states in 2018.

In comparison to our neighboring states in the 2019 rankings, Kentucky outranks Ohio (42) and Illinois (36) but trails Indiana (10), Tennessee (16), Missouri (14), West Virginia (19), and Virginia (22). Indiana was ranked 9th in 2018, dropping one place in 2019 to 10th. The Tax Foundation noted that the Hoosier state, along with Utah, is one of the best-ranked states among those that impose all the major forms of taxation.  


In the overall category, the top five states in the nation are Wyoming, Alaska, South Dakota, Florida, and Montana. The lowest five are New Jersey, California, New York, Connecticut, and the District of Columbia and Arkansas—both tied for 46th place

A black eye on Kentucky’s business tax climate rankings, as pointed out by the study, are unemployment insurance taxes. Kentucky ranks 47th, just in front of Idaho, Michigan, and Massachusetts—the three lowest-ranked states in this category. Reforming unemployment law in Kentucky is a top priority for GLI. It’s key not only to lowering costs for businesses but also improving our workforce.  

Looking ahead to the Tax Foundation’s 2020 State Business Tax Climate Index, GLI intends to continue working to improve Kentucky’s rank. Having a pro-business, competitive tax code not only encourages entrepreneurship and incentivizes business to expand and relocate to Greater Louisville but also helps to attract and retain talented workers.

Click here to read the full study and to learn more about the Tax Foundation’s methodology.

*These rankings are based on the Tax Foundation’s indices published on October 16, 2017, and September 26, 2018, respectively. When preparing new indices, the Tax Foundation makes adjustments to previously-published rankings as a result of retroactive statutes, backcasting of methodological changes, and corrections. Consequently, Kentucky’s ranking for 2018 was recalculated at 39th for the 2019 index, meaning it moved 16 spots from 39rd to 23rd. GLI has decided to use Kentucky’s previously-published ranking of 33rd for the sake of convenience.