CNBC Ranks Ohio 5th in the Nation for ‘Cost of Doing Business’ Leapfrogging from 29th Place Just Last Year

State’s business-friendly redesign accounts for remarkable turn around in helping companies retain more profits and bring more jobs, but Ohio’s ‘Workforce’ ranking now dead last in nation.

Cost is a major consideration when a company chooses a location. The ideal business location maximizes the value of the investment by delivering a perfect balance between access to mission-critical resources and low overhead costs.

Ohio continues to gain recognition for its favorable business climate and tax structure, combined with low business and personal costs, make the state an increasingly viable location for business growth. According to CNBC’s “America’s Top States for Business 2011″report, Ohio ranks 5th in the nation for Cost Of Doing Business. Ohio improved to 5th place from 29th place last year due to its recent effort to reform the state’s tax structure.

The top five states for “Cost of Doing Business” are Iowa and Arkansas tied for first place, followed by Missouri, Kentucky and Ohio.

The CNBC ranking is based on tax burden, including individual income and property taxes, as well as business taxes, particularly as they apply to new investments. Costs for utilities, wages, and rental costs for office and industrial space were also considered. Ohio’s more proactive, business-friendly redesign was implemented to help companies better compete a global economy.

CEOs and entrepreneurs consider cost of doing business a very important factor when determining a location for capital investment. The more investment capital that actually makes it to product development and commercialization, the greater the probability of success. And, the faster the return on investment.

“Just one of Ohio’s many business incentives includes a sweeping tax reform, which is recognized as a key contributor to keeping overhead costs down,” said former Ohio Tax Commissioner Thomas M. Zaino, J.D., CPA. “In fact, Ohio was recently recognized as having the third friendliest tax environment in the nation.”

Over the last five years, Ohio lawmakers dramatically revamped the state’s tax structure to create the lowest tax rates in the Midwest and an extremely profit-friendly business climate for companies that locate in the state, despite a national recession that caused several other states to raise taxes. The state’s central location and tax structure makes it cost effective for companies to serve customers in North America and around the world.

What Has Ohio Done To Improve Its Cost of Doing Business?

The most notable changes to Ohio’s tax system include the elimination of two very burdensome business taxes – the corporation franchise tax and the tangible personal property tax. These taxes were replaced by a new, 0.26 percent Commercial Activity Tax (CAT), which applies only to in-state sales. For example, if a business were to ship 100 percent of its sales out of Ohio, it would pay zero CAT, increasing Ohio’s appeal to companies that export goods out of the state or country.

“Because the CAT applies to receipts rather than profits, a more profitable business does not incur higher taxes,” said Howard Fleeter, Ph.D., a partner in the Columbus-based economic analysis and public policy research firm of Driscoll & Fleeter. “Companies in states that tax profits incur a ‘success penalty’ because efficiency and productivity gains trigger higher taxes.”

Elimination of taxes on the first $1 million of gross receipts is another aspect of Ohio’s business tax reform that makes the state particularly attractive to entrepreneurs. Instead, businesses pay a minimal, flat fee of $150 on up to $1 million in sales. In addition, Ohio businesses also pay no tax on capital investments, which frees up funds for investment in plants, equipment, inventory and personnel. And, because only business activity that takes place in Ohio is taxed by the state, entrepreneurs have an incentive to serve customers across the country and around the world.

The Big Picture

All things considered, Ohio saw major improvement in the CNCBC 2011 rankings moving 11 places from 34^th to 23^rd in the Nation “Over All” - a compilation of the ten individual rankings. At 23rd, however, Ohio is far from leading the pack  in the race to attract new business. In fact, it now ranks dead last (“50th”) in the “Workforce” category based on the education level of the state’s workforce, numbers of available workers and union membership and its control over the workforce. Ohio actually fell two slots in this category from 48^th last year.

“While organized labor contends that a union workforce is a quality workforce, that argument, more often than not, doesn’t resonate with business,” says CNBC.

Ohio also scores low marks for “Quality of Life” (local attractions, crime rate, health care, as well as air and water quality) and “Business Friendliness” (perceived “friendliness” of a state’s legal and regulatory frameworks to business). In both categories Ohio ranks just 42, a move of 4 places in the wrong direction from last year’s score.

To its credit, Ohio places among top fifteen states in half of the ten categories:

• Besides ranking 5^th in “Cost of Doing Business,” Ohio ranks 4^th in “Infrastructure and Transportation” (albeit falling two places in 2011);
• 13^th in both “Cost of Living” and “Education” (up 5 and 2 positions respectively);”
• and 15^th in “Technology and Innovation” (no change from last year).

Ohio’s climate for business, although still not balmy, is indeed hotter than it’s been in years.