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Considering myriad factors when assessing cross-border climates, competitiveness for business.

Business climate. Yes, the term means a lot of different things. Generally, a sunny climate indicates a certain level of hospitality and support for the organizations that call a given region “home.” A chilly climate is associated with the opposite; businesses may be reluctant to consider locating or expanding within a given geographic market.

As noted, the overall perception of the environment for business is influenced by numerous indicators. These indicators are largely classified as “microeconomic,” business- or investment-focused, and “macroeconomic,” a nod to broader, large-scale economic influences. Microeconomic indicators might include the availability and quality of labor, competition and consumers/demographics in the local market. Macroeconomic might span the likes of fiscal or monetary policies, which could shed some light on future performance within a given region based, partly, on past performance.

We at O’Donnell, Ficenec, Wills & Ferdig have more than 70 years of experience in supporting the health and sustainability of businesses throughout our region. By that, our clients transcend the borders of our “home” state. With such helpful perspective, we understand how nuanced indicators (that either drive or stall business) can be from community to community, and state to state.

Notably, Nebraska and Iowa share in their status as members of the West North Central geographic region. This region largely extends from North Dakota and Minnesota to Kansas and Missouri. While this geography is shared, there are differences to be explored that could sway your organization’s strategy now and into the future.

Here, we take a look at reports released this summer and winter that assess how “warm” or “chilly” a state may be to attracting and supporting business. A deeper dive into these reports also highlights the variables to consider when incorporating or growing your footprint within certain states.

Top States for Business

In its 15th year, CNBC added several additional metrics, bringing the total factors assessed in the America’s Top States for Business report to 88 across 10 categories. Fresh metrics included the likes of resources for child care, and how “friendly” the state is to those industries described as “emerging”; for example, crypto.

These additions underscore the fluidity of business environment-oriented indicators, and the essential need to stay on top of changing indices. In fact, researchers hat-tipped social unrest, severe worker shortages, and historic inflation as the drivers behind such changes, due to their undeniable influence on how businesses in certain states compete.

Two states in geographically disparate areas of the South Atlantic and Pacific Northwest topped the list: North Carolina and Washington. Mississippi and Alaska rounded out the bottom of the list. Both Nebraska and Iowa bested most of the competition and favored well when considering other states in our neck of the Midwestern “woods.”

Ranked 7th, the Husker State fared well in terms of the categories of “cost of doing business,” “life, health and inclusion,” “business friendliness” and “cost of living.” The state lagged in terms of “workforce” and “access to capital.” In fact, the latter metric earned a “D+,” though its ranking is improving (climbing from No. 39 to No. 32 between 2021 and 2022). In a state snapshot, researchers isolated the state’s GDP growth (for first quarter) of -2.4%, its unemployment rate of 1.9%, and top corporate and individual income tax rates at 7.5% and 6.84%, respectively.

Ranked 12th, the Hawkeye State also fared well in terms of “cost of doing business,” “cost of living,” and “life, health and inclusion”; however, it earned a “D+” in the category of “business friendliness.” Since this is a notable departure from Nebraska’s rank, it is important to clarify the considerations that went into the “business friendliness” category. Legal and regulatory framework were reportedly assessed, in addition to states’ liability/lawsuit “climates,” overall bureaucracy and an aforementioned new point: Hospitability toward emerging economies.

Continuing with bright and cloudy spots alike, Iowa also earned a “D” in “infrastructure.” But it bested Nebraska slightly in the category of “access to capital,” compared favorably in “technology and innovation,” and was pretty much neck and neck in “education.” Within its state snapshot, researchers spotlighted GDP first quarter growth of -1.3%, an unemployment rate of 2.7%, and top corporate and individual income tax rates of 9.8% and 8.53%, respectively.

For more regional perspective, Minnesota ranked No. 9 in this year’s report, while North Dakota was on Iowa’s heels at No. 13. Kansas, South Dakota and Missouri all broke the top 25 states on the list, ranking No. 21, 22 and 25, respectively. More detail into the methodology behind this program and changes to this year’s report can be found here.

Tax Climate Index

As accounting and tax professionals, we take a special interest in the role that taxation plays in the business environment. Courtesy of independent tax policy researchers, the Tax Foundation, neither state made the top nor the bottom of their forward-looking 2023 State Business Tax Climate Index. They were both in the “grays” at best, with a middling to lackluster performance of No. 29 and No. 38 for Nebraska and Iowa, respectively.

Nebraska ranked favorably in the areas of sales and unemployment insurance taxes (Nos. 9 and 11). Conversely, it ranked 32nd and 39th in individual and property taxes. Its neighbor to the east ranked most favorably in sales taxes (at No. 15), while it lagged in individual and property taxes (ranked No. 40 in both metrics).

Both Nebraska and Iowa were isolated by the foundation in its summary write-up. Nebraska was among those with “notable ranking changes.” The Tax Foundation referred to LB 432 (2021), which reduced the top marginal corporate income tax rate from 7.81% to 7.5% at the start of 2022. It also isolated LB 873, which is designed to reduce the top marginal individual income tax rates from 6.84% to 5.84% over the next five years, starting in 2023. These legislative changes led to Nebraska climbing in the rankings, year on year, from No. 30 to No. 29.

Iowa was among those states characterized as having “recent and scheduled tax changes” that were “not accounted for in the latest rankings” released in late October. These changes refer to a tax reform package that transforms the graduated rate income tax into a flat tax of 3.9%. The corporate tax is also slated for a reduction (to 5.5%). Other reforms are in the works, with 2023 reportedly marking the consolidation of the income tax to four brackets (a top marginal rate of 6%). The flat rate is in its sights for 2026. These gradual changes, the foundation asserts, will “accelerate and build upon two previous rounds of tax reform” and analysts predict it will “dramatically improve Iowa’s ranking.”

For comparison, South Dakota was the sole state within our immediate geographic region to break the top 10. It ranked No. 2 and was only bested by a state that also shares its borders with Nebraska: Wyoming. Naturally, these states, along with Nevada, do not have corporate or individual income taxes. Hampered by what was described as complex, non-neutral taxes and burdensome property tax and corporate income tax rates, New Jersey and New York ranked at the bottom of the list.

The full report, including methodology and references, can be viewed here.

As you can quickly see, such rankings are fertile ground to underscore the notion that broad summations of business climate “depend on where you look.” There are myriad factors that make up the whole local market, economic, and investment environment picture. We get to know our clients’ respective business and industries, and what matters and is most relevant to them. This knowledge can then be used to provide guidance that supports sustained viability and growth, no matter where one may take up roots. We encourage you to contact us today with any questions and to schedule a consultation with one of our talented and seasoned professionals.

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