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The Tax Foundation, a nonpartisan research group in Washington, D.C., recently released its 2006 version of the State Business Tax Climate Index, which serves as a tool for the media, policy-makers and citizens to gauge how their states' tax systems compare.

The two overriding messages that leap out from the foundation's report this year are, first, "taxes matter to businesses," and, second, that "states do not enact tax changes in a vacuum." Every tax law will in some way change a state's competitive position relative to its immediate neighbors.

Those places with the most competitive tax systems will reap the benefits of business-friendly tax climates. The decision by Intel to build a multibillion-dollar chip-making facility in Arizona due to its favorable corporate income tax system is a prime example. Just days before Intel announced its decision to expand in Arizona, the Business Journal of Phoenix printed the following: "Earlier this year, the state Legislature and Gov. Janet Napolitano approved a change in the state tax code offering tax cuts to manufacturers and chip-makers. Intel was a major backer of that tax cut and the company's possible expansion in the state hinged on that tax relief."

So, how does New Mexico rank according to the latest data collected by the Tax Foundation? Since 2003, New Mexico has steadily improved its ranking. Our state ranked 33rd in 2003, 29th in 2004 and for 2006 now ranks 28th. The top 10 best tax climates are in Wyoming, South Dakota, Alaska, Florida, Nevada, New Hampshire, Texas, Delaware, Montana and Oregon. The 10 worst, in descending order, are Arkansas, Iowa, Nebraska, Kentucky, Maine, Vermont, Ohio, Rhode Island, New Jersey and New York.

The Tax Foundation's rankings are based on five indexes: the corporate tax, the individual income tax, the sales and gross receipts tax, the unemployment tax and the wealth tax. New Mexico was ranked best in the country for its wealth tax index. According to the foundation, this is the first time this type of index has been included in the overall mix. The wealth tax index is comprised of taxes levied on the wealth of individuals and businesses. Property taxes are a major component of this index. The other wealth taxes taken into consideration for the ranking are inheritance taxes, estate taxes, capital stock taxes and gift taxes.

So where do we go wrong? We're 18th best in unemployment taxes, 31st in corporate income taxes and rank 24th in the country for our personal income tax rates. It's that darned ol' gross receipts tax, the bane of businesses across the state. In the gross receipts and sales tax category, New Mexico ranks 48th.

Why so low? According to the study, "tax pyramiding" occurs when sales taxes are levied on business-to-business services, which results in some industries being taxed more heavily than others, which causes economic distortions. Guess which state has a massive tax pyramiding problem?

If our policy-makers could ever get their arms around this problem, even modestly, New Mexico's business climate ranking by the Tax Foundation would soar upward.

There are obviously many factors that can be analyzed to get a fuller picture of how attractive a community is for business. Forbes magazine just heralded Albuquerque as the top city in the nation on its list of Best Places for Business and Careers.

Every study has its own methodology and parameters. Even though we still have a problem with our gross receipts tax, its encouraging that our biggest city and the state as a whole continue to be viewed in an increasingly more positive light.

Bullington is senior policy adviser and director of New Mexico government relations for the Brownstein, Hyatt & Farber law firm. He writes this column weekly.