Report: Arizona’s tax system ranks in nation’s Top 15

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(The Center Square) - Arizona has the 14th best tax structure in America, according to a new report. 

The Tax Foundation recently released its 2026 State Tax Competitiveness Index, which examines states’ tax structures and ranks them. 

Arizona ranked "fairly well" with most of its taxes, said Nicole Fox, a policy analyst for the Tax Foundation. She noted the state fell short with its sales tax.

The foundation has published this report since 2003. Arizona has ranked between 14th and 18th on the index since 2020, Fox told The Center Square this week. “Arizona has a fairly competitive tax system."

The index ranks states according to five categories: corporate tax, individual income tax, sales tax, property tax and unemployment insurance tax. 

The report said Arizona ranked first in America in unemployment insurance tax, which funds unemployment benefits. 

For individual income tax, Arizona ranked ninth in the country. Fox said Arizona had the eighth lowest income tax in America, with a flat rate of 2.5%. Arizona is tied with North Dakota for the lowest individual income tax among states that have one, she said.  

The states without an individual income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. 

For corporate taxes, Arizona ranked 13th. Despite having the 37th highest corporate tax rate of 4.9%, Arizona ranks high on the Tax Foundation's list because it does not impose “gross receipts taxes and capital stock taxes,” the report noted. 

The only area where Arizona did not perform well was sales tax, Fox said. It ranked 45th in this category.

Fox said the combined state and local sales tax rate is 8.52%, the 11th highest in the country. 

But Fox noted the state exempts many personal services from sales taxes, such as haircuts and dry cleaning. 

On the down side, the state taxes things such as office equipment, business leases and software services, Ford said. She warned the "business-type taxes" are passed down to consumers with higher prices. She noted Arizona could consider stopping its tax on those items.

Overall, Arizona ranked ahead of neighboring states California, Nevada, Utah, New Mexico and Colorado.  

The states with the highest rankings were Wyoming, South Carolina and New Hampshire. The states with the lowest rankings were California, New Jersey and New York.

States that remain complacent regarding tax laws risk falling in future rankings, Fox told The Center Square.