Compared to the rest of the U.S., Michigan ranks relatively high in the quality of the state’s tax system for small business, at 13th of all 50 states, according to a Small Business & Entrepreneurship Council study. In the report’s findings of each state’s tax burden, Michigan maintains a competitive economic environment but there are barriers to investment.
Michigan scores above average on its personal income, capital gains, and dividends and interest tax rates, all at 4.25 percent. Since 94 percent of businesses file as individuals on taxes, Michigan could benefit from maintaining or lowering its personal income tax rate, which influences how individuals save, invest, and take risks. Accessing capital is one of the biggest hurdles for start-ups, and Michigan’s decent capital gains tax rate eases entrepreneurship, but could use improvement.
Michigan ranks poorly in state property and gas taxes. Maintaining these below average rates deters investment and creates added costs for businesses. Michigan needs to make significant reforms to improve its tax burden and business climate, like eliminating capital gains and income taxes.
As small businesses look to Congress to reform the federal tax system, it’s important to also keep pressure on elected officials for tax reform on the state and local levels.