The Business Tax Competitiveness Of Wyoming

If you’re a business person looking to set up a company somewhere, there is no shortage of options. However, because of its unique place as one of the world’s financial powerhouses, the United States makes for an excellent home country for such a business. As of June 2022, Oberlo notes that 5.39 million applications for businesses have been made in the US for this year so far. Many of these businesses are filed and registered in states with favorable tax regimes. One of the more popular states to do this in is Wyoming, but how competitive is Wyoming’s business taxation regime?

State vs. Local Taxes

If you’re not a native of the US, you can be forgiven for thinking there’s a single tax regime that affects all companies within the United States. On the contrary, taxes are delineated between state and federal taxes. At the national level, the US government leverages taxes at a standard rate. Whatever a company makes, it must pay taxes on the income earned to the IRS. Limited Liability Companies (LLCs) can be incorporated as pass-through entities, meaning they aren’t considered companies for taxation. In such a case, the owners would be taxed at the individual earning level, based on how much the company makes.

On the other hand, state taxes show the difference in how legislation affects each state. While the federal government levies taxes on companies and corporations, states also have that right. Some states require any company within their borders to pay a state tax of a comparative rate to federal tax. Many states see LLCs are registered businesses and tax them at the commercial rate. Wyoming is one of the best places to set up a business in the US because of its approach to taxing firms. Established firms receive the lowest effective tax rate in the country, and new firms benefit from the seventh lowest tax rate in the United States.

Diversification of the Economy

As recently as 2019, Wyoming was suffering from a recession, where their average economic growth featured in the negatives. There have been many pushes by local legislators and commercial interests to diversify the state’s income. According to Wyoming’s State Government, mining, construction, agriculture, and trade make up the mainstays of the state’s income. However, the state has put a lot of effort into publicizing its preferential tax rates, bringing in new businesses, and investment from abroad. Registering an LLC in Wyoming for someone who is a non-native American is a huge benefit, allowing such a person to access the strength and buying power of the American economy along with its complete protection for small businesses.

Overburdened Taxation

Despite these low and preferential tax rates, Wyoming needs to find a way to diversify its economy further. Businesses pay up to 70% of the local and state taxes, compared to a nationwide average of 44%. Several individuals within ENDOW, the board set up to come up with ways to diversify, have hinted at increasing taxes. Many businesses in Wyoming cannot afford to move, so increasing taxes on their assets will raise revenue for the state. However, this approach fails to consider that many new and established businesses (especially during and after the pandemic) were registered as online-only. If these taxes were to raise, it would lead to many of these businesses relocating and the state losing whatever taxable income they would have gotten from them. Based on the existing numbers, it’s doubtful the extra revenue raised from physical enterprises would be enough to offset the losses from these online-only businesses relocating.

Existing Taxation of Physical Enterprise

Currently, businesses within Wyoming don’t pay income taxes, and most state taxes are generated through property taxes. Unlike many other states, property taxes also take into account equipment. This approach makes sense in a state where many operators have large fixtures on the landscape that enable them to perform their job. Unfortunately, this is a double-edged sword for the physical enterprises in the state. With this approach, businesses that invest capital in equipment stand to pay more taxes. Therefore, these businesses are hobbled, unable to innovate for a more efficient extractive industry within the state.

Problems with Wyoming’s Business Taxation

For online-only businesses, there isn’t any worry about owning property or equipment. However, the taxation system is still not as favorable as it could be. Wyoming’s tax base is poorly designed, not only to deal with physical enterprises but online ones as well. Instead of offering value for money, Wyoming takes a small cut of intermediate transactions. While this does increase the state income and doesn’t hinder commercial action too much, it’s not a very good system. The result is that businesses bear the brunt of taxation. The state also has a modest sales tax, which aids a little in helping to steady the ship. However, the little help it provides is not really substantial.

Wyoming’s taxation schedule covers many things businesses have no choice but to pay into. For example, fuel taxes go towards improving infrastructures like roads and bridges. Property taxes go towards improving amenities in cities and rural districts. However, the sales tax is different. It’s built to be a consumption tax, but it ends up taxing producers. The sales tax is applied at the final stage of consumption and each intermediate level. The result is a process known as “tax pyramiding.” The final product is significantly taxed, with more labor-intensive products costing the consumer more since taxes are levied at each production level.

Is it Worth It to Register a Business in Wyoming?

Wyoming’s tax system needs significant reform. You could read more about registering a business in Wyoming to take advantage of their low tax rates, but retail businesses could suffer. Hopefully, the tax reform undertaken by ENDOW will help enterprises rather than punish them for adding to the state’s GDP.