ON-Lion Letter

State and local taxes represent a major cost for businesses, and the tax burden varies greatly between different states and industries.  The widespread interest in state corporate-tax burdens has resulted in a variety of studies that focus on things like business-tax collections per capita, the value of tax incentives for different businesses, or the relative ranking of a state's business-tax code.  None of the studies, however, provides business leaders or policymakers with a comparison of actual state tax burdens faced by real-world businesses.

The Tax Foundation in Washington, D.C., recently released a study in collaboration with KPMG -- the major U.S. audit, tax, and advisory firm -- that fills this information gap.  Location Matters:  The State Tax Costs of Doing Business is the leading, apples-to-apples comparison of actual state tax burdens faced by real-world businesses.  It not only examines the different tax rates faced by different types of businesses, but also highlights how tax codes treat new and previously established firms within each state.

For the study, Tax Foundation economists created seven model firms in different industries and KPMG tax specialists calculated the tax bill for those firms in each state, both as new facilities and as mature firms (ones that are at least 10 years old).

"Discussions of business taxes sometimes focus on topline rates while ignoring how those taxes may fall on different kinds of businesses," Tax Foundation policy analyst Jared Walczak said.  "Tax reform discussions often focus on lowering the tax burden on business in general.  However, it’s also crucial to address the tax code's treatment of new and mature businesses in different industries."  

States with low statutory tax rates can still impose high effective tax burdens due to factors such as tax incentive, apportionment, and throwback rules, the study found. 

Corporate income taxes are just one part of a business's tax burden, it also found.  Sales, property, and unemployment insurance taxes can also impose significant burdens on businesses.

Also, tax incentives chiefly benefit new firms, often to the disadvantage of established operations, according to the study.  

The Lynde and Harry Bradley Foundation in Milwaukee supports the Tax Foundation.

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