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If you are thinking of launching a small business, state taxes might influence its location, for better or for worse. Here's the ranking.
If state income taxes are deductible from federal returns, why would they have much of an effect on a business?
Uh, because they are a deduction, not a credit. So one in effect gets a reduction in federal tax equal to the federal rate applied to the nominal state tax amount. For this year, at least, if I pay $1000 in state taxes, I get a reduction in federal tax of $350 (simplifying, but basically), but I still send Trenton $650 I would not have to spend if my tax domicile were in, say, Texas.
Got it. Thanks.