If you’re starting a small business, Arizona is an advantageous place to do it, according to a new Tax Foundation study.
The study says the top marginal income tax rate for pass-through companies is lower in Arizona than in much of the country.
The Grand Canyon State has the 33rd highest rate in the nation for federal, state, and local marginal income tax on pass-through companies such as sole proprietorships.
Arizona’s top marginal rate of 46.5 percent was far better than its neighbor California—which has the highest tax rate in the nation for sole proprietorships at 51.8 percent.
Here are the top marginal pass-through rates of Arizona’s other neighbors:
New Mexico: 46.7
Pass-through businesses account for over 90 percent of the companies in the country and employ more than half of the private sector, making them a key player in the nation’s business economy, the study noted.
While some policymakers have suggested taxing large pass-through businesses as C corporations, the report urges caution.
“Lawmakers should keep in mind that the current system of taxing pass-through businesses is designed well, and they should be cautious about making fundamental changes to it,” it said.