Analysis of State Tax Costs on Businesses: Location Matters
The Tax Foundation, in collaboration with KPMG
•
Scott Hodge, President, Tax Foundation
•
Hartley Powell, Principal, KPMG
•
Ulrich Schmidt, Sr. Manager, Global Location
and Expansion Services, KPMG
•
Glenn Mair, Director, MMK Consulting
•
Questions? Contact Richard Morrison, Media
Manager, Tax Foundation:
202-464-5102
Morrison@taxfoundation.org
Paying state corporate taxes is like buying a
car – everyone pays a different price
CarMax states tend to have the lowest tax
costs for business
…Represents the most extensive
comparison of real-world corporate tax
costs across the 50 states ever
undertaken.
Highest Burdens
1.
New Jersey – 12.2%
2.
New York – 12.1%
3.
Connecticut – 12.0%
4.
Wisconsin – 11.0%
5.
Rhode Island – 10.7%
Lowest Burdens
46.
Wyoming – 7.8%
47.
Tennessee – 7.6%
48.
South Dakota – 7.6%
49.
Nevada – 7.5%
50.
Alaska – 6.3%
Measures
how much
a state taxes, i.e. the total tax burden
Top Ranking States
1.
Wyoming
2.
South Dakota
3.
Nevada
4.
Alaska
5.
Florida
Bottom Ranking States
46.
Rhode Island
47.
Vermont
48.
California
49.
New York
50.
New Jersey
Measures
how
a state taxes, i.e. effects on
all
types of businesses
“How Much Will My Company
Pay in Taxes?”
•
Corporate Headquarters
•
R&D Facility
•
Independent Retail Store
•
Call Center
•
Distribution Center
•
Capital-Intensive Manufacturing (Steel Factory)
•
Labor-Intensive Manufacturing (Truck Factory)
Two Variations of Each Firm:
Two Variations of Each Firm:
Mature firms – older than 10 years
New firms – 3 years old,
eligible for incentives
•
Mobile and competed for by states
•
All C-corporations, not pass-throughs such as
LLCs and S-corporations
•
Firms have property & payroll in home state,
while sales are in all other states in proportion
to that state’s GDP (except retail)
•
All 50 states & Washington, DC
•
99 Locations:
•
Tier 1 Cities
– the major city in each state (For
Corporate HQ, R&D Facility, Retail Store*)
•
Tier 2 Cities
– a mid-size city
(For Call Center, Distribution
Center, Manufacturing*)
*
Providence Rhode Island serves for both locations
Corporate net income taxes
Gross receipts and franchise taxes
Property taxes
Unemployment insurance (UI) taxes
Sales taxes on business equipment
•
New jobs credit
•
Investment credit
•
R&D tax credit
•
Payroll withholding tax rebates
•
Property tax abatements
•
Total Effective Tax Rates (TETR)
– all state/local taxes divided by
pre-tax business profits
•
Index Scores – ranks state tax
burdens against the national
average
e.g.: National Average = 100
Score of 120 = 20% above avg.
Score of 80 = 20% below avg.
Differences across 50 states – a
“composite” ranking for all 7 firm types
Differences across industries within
each state
Differences between new firms
(eligible for incentives) and mature
firms (no incentives) within each state
•
Tax law through April 1, 2011
•
Seven model firms may not represent all
businesses
•
Rankings and burdens don’t necessarily reflect
the quality of a state’s tax system – we make no
value judgment here
•
States can achieve similar results in different
ways
•
Assumptions matter
Lowest Tax Cost States
1.
Wyoming
2.
South Dakota
3.
Georgia
4.
Nevada
5.
Ohio
6.
Utah
7.
North Carolina
8.
Maryland
9.
Nebraska
10.
Louisiana
Why Do They Rank Well?
•
No corporate income
tax – WY, SD, NV, (OH)
•
Low CIT rate – UT, GA
•
Single sales factor
•
No throwback rule
•
Top ten index score in
multiple firm types –
but much variation
Highest Tax Cost States
41.
New Jersey
42.
New York
43.
Indiana
44.
Massachusetts
45.
Illinois
46.
Rhode Island
47.
Kansas
48.
West Virginia
49.
Hawaii
50.
Pennsylvania
Why Do They Rank Poorly
•
High tax rates – not just CIT
•
Top ten burden for at least
one tax type – CIT, sales, UI,
property
•
Unfavorable
apportionment, sourcing
rules
•
Subject high percentage of
income to state CIT
•
Bottom ten ranking in
multiple firm types
Lowest Tax Cost States
1.
Nebraska
2.
Louisiana
3.
Ohio
4.
Wisconsin
5.
Oklahoma
6.
Georgia
7.
Kentucky
8.
Arkansas
9.
Wyoming
10.
Utah
Why Do They Rank Well?
•
Six states also top-
ranked for mature firms
(NE, LA, GA, OH, WY, UT)
•
Aggressive with tax
incentives (NE, LA, WI,
not WY)
•
Incentives moved AR,
KY, OK to jump from
middle to top
Highest Tax Cost States
41.
Iowa
42.
Texas
43.
Massachusetts
44.
Rhode Island
45.
California
46.
Maryland
47.
Colorado
48.
Kansas
49.
Pennsylvania
50.
Hawaii
Why Do They Rank Poorly
•
Five states also worst for
mature firms (HI, KS, MA, PA,
RI)
•
Maryland – top ten for mature
firms, bottom ten for new
•
High property taxes
•
High sales taxes on equipment
& inventory
•
Few/lack of incentives (TX, CA)
Example: Minnesota (39
th
for Mature firms)
TETR
Rank
Capital-Intensive MFG
6.2%
7
Labor-Intensive MFG
10.0%
22
Corporate HQ
22.4%
47
Distribution Center
45.9%
46
Nebraska – Call Center
Mature: 20.1%
New: 1.1%
Louisiana – Capital-Intensive MFG
Mature: 10.9%
New: 1.0%
Arkansas – R&D Facility
Mature: 13.6%
New: 6.7%
Mature
: Wyoming 1
st
Pennsylvania 50
th
New
: Nebraska 1
st
Pennsylvania 50
th
Mature
: Louisiana 1
st
Pennsylvania 50
th
New
: Louisiana 1
st
Pennsylvania 50
th
Mature
: Wyoming 1
st
Pennsylvania 50
th
New
: South Dakota 1
st
Iowa 50
th
Mature
: South Dakota 1
st
New Jersey 50
th
New
: Nebraska 1
st
West Virginia 50
th
Mature
: Wyoming 1
st
Iowa 50
th
New
: Ohio 1
st
Kansas 50
th
Mature
: Wyoming 1
st
Hawaii 50
th
New
: Louisiana 1
st
Maryland 50
th
Mature
: Wyoming 1
st
Hawaii 50
th
New
: Louisiana 1
st
Hawaii 50
th
There are considerable variations in average
corporate tax burdens across the 50 states
There are considerable variations in the tax
burdens faced by different firm types within
each state
There are often large differences in tax burdens
between mature and new firms within each
state
CarMax usually has the lowest price
•
Scott Hodge, President, Tax Foundation
•
Hartley Powell, Principal, KPMG
•
Ulrich Schmidt, Sr. Manager, Global Location
and Expansion Services, KPMG
•
Glenn Mair, Director, MMK Consulting
Questions?
Contact Richard Morrison, Media Manager, Tax
Foundation:
202-464-5102, Morrison@taxfoundation.org
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Explore the comprehensive analysis of state tax costs on businesses in "Location Matters." The study reveals varying tax burdens across different states, with insights on the impact on business operations. Findings highlight the significance of location in determining corporate tax liabilities and provide valuable information for companies navigating tax environments. The presentation covers key aspects such as state and local tax burden reports, business tax climate index, and real-world comparisons of tax costs. Discover how state tax policies can influence corporate financial strategies and overall competitiveness.
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Presentation Transcript
Location Matters: A Comparative Analysis of State Tax Costs on Business The Tax Foundation, in collaboration with KPMG
Presenters: Scott Hodge, President, Tax Foundation Hartley Powell, Principal, KPMG Ulrich Schmidt, Sr. Manager, Global Location and Expansion Services, KPMG Glenn Mair, Director, MMK Consulting Questions? Contact Richard Morrison, Media Manager, Tax Foundation: 202-464-5102 Morrison@taxfoundation.org
Study Findings in Brief: Paying state corporate taxes is like buying a car everyone pays a different price CarMax states tend to have the lowest tax costs for business
Location Matters Represents the most extensive comparison of real-world corporate tax costs across the 50 states ever undertaken.
Tax Foundation State and Local Tax Burden Report Measures how much a state taxes, i.e. the total tax burden Highest Burdens New Jersey 12.2% New York 12.1% Connecticut 12.0% Wisconsin 11.0% Rhode Island 10.7% Lowest Burdens 46. Wyoming 7.8% 47. Tennessee 7.6% 48. South Dakota 7.6% 49. Nevada 7.5% 50. Alaska 6.3% 1. 2. 3. 4. 5.
Tax Foundation State Business Tax Climate Index Measures how a state taxes, i.e. effects on all types of businesses Top Ranking States 1. Wyoming 2. South Dakota 3. Nevada 4. Alaska 5. Florida Bottom Ranking States 46. Rhode Island 47. Vermont 48. California 49. New York 50. New Jersey
Location Matters Answers the Bottom-Line Question: How Much Will My Company Pay in Taxes?
Seven Model Firms Seven Industries: Corporate Headquarters R&D Facility Independent Retail Store Call Center Distribution Center Capital-Intensive Manufacturing (Steel Factory) Labor-Intensive Manufacturing (Truck Factory) Two Variations of Each Firm: Mature firms older than 10 years New firms 3 years old, eligible for incentives
Mobile Corporations Selling Nationally: Mobile and competed for by states All C-corporations, not pass-throughs such as LLCs and S-corporations Firms have property & payroll in home state, while sales are in all other states in proportion to that state s GDP (except retail)
Two Cities Within Every State All 50 states & Washington, DC 99 Locations: Tier 1 Cities the major city in each state (For Corporate HQ, R&D Facility, Retail Store*) Tier 2 Cities a mid-size city (For Call Center, Distribution Center, Manufacturing*) * Providence Rhode Island serves for both locations
Calculate the Taxes that matter to business: Corporate net income taxes Gross receipts and franchise taxes Property taxes Unemployment insurance (UI) taxes Sales taxes on business equipment
And, The Most Common Tax Incentives: New jobs credit Investment credit R&D tax credit Payroll withholding tax rebates Property tax abatements
Two Measurement Tools: Total Effective Tax Rates (TETR) all state/local taxes divided by pre-tax business profits Index Scores ranks state tax burdens against the national average e.g.: National Average = 100 Score of 120 = 20% above avg. Score of 80 = 20% below avg.
3 Ways to Compare Corporate Tax Bills: Differences across 50 states a composite ranking for all 7 firm types Differences across industries within each state Differences between new firms (eligible for incentives) and mature firms (no incentives) within each state
Caveats and Limitations Tax law through April 1, 2011 Seven model firms may not represent all businesses Rankings and burdens don t necessarily reflect the quality of a state s tax system we make no value judgment here States can achieve similar results in different ways Assumptions matter
MatureFirm Composite Results Why Do They Rank Well? Lowest Tax Cost States 1. Wyoming 2. South Dakota 3. Georgia 4. Nevada 5. Ohio 6. Utah 7. North Carolina 8. Maryland 9. Nebraska 10.Louisiana No corporate income tax WY, SD, NV, (OH) Low CIT rate UT, GA Single sales factor No throwback rule Top ten index score in multiple firm types but much variation
MatureFirm Composite Results Highest Tax Cost States Why Do They Rank Poorly High tax rates not just CIT Top ten burden for at least one tax type CIT, sales, UI, property Unfavorable apportionment, sourcing rules Subject high percentage of income to state CIT Bottom ten ranking in multiple firm types 41. New Jersey 42. New York 43. Indiana 44. Massachusetts 45. Illinois 46. Rhode Island 47. Kansas 48. West Virginia 49. Hawaii 50. Pennsylvania
NewFirm Composite Results Why Do They Rank Well? Six states also top- ranked for mature firms (NE, LA, GA, OH, WY, UT) Aggressive with tax incentives (NE, LA, WI, not WY) Incentives moved AR, KY, OK to jump from middle to top Lowest Tax Cost States 1. Nebraska 2. Louisiana 3. Ohio 4. Wisconsin 5. Oklahoma 6. Georgia 7. Kentucky 8. Arkansas 9. Wyoming 10.Utah
NewFirm Composite Results Highest Tax Cost States Why Do They Rank Poorly Five states also worst for mature firms (HI, KS, MA, PA, RI) Maryland top ten for mature firms, bottom ten for new High property taxes High sales taxes on equipment & inventory Few/lack of incentives (TX, CA) 41. Iowa 42. Texas 43. Massachusetts 44. Rhode Island 45. California 46. Maryland 47. Colorado 48. Kansas 49. Pennsylvania 50. Hawaii
Industries Taxed Differently Within States Example: Minnesota (39th for Mature firms) Capital-Intensive MFG Labor-Intensive MFG Corporate HQ Distribution Center TETR 6.2% 10.0% 22.4% 45.9% Rank 7 22 47 46
Wide Variations of Effective Tax Rates Between Mature and New Firms Nebraska Call Center Mature: 20.1% New: 1.1% Louisiana Capital-Intensive MFG Mature: 10.9% New: 1.0% Arkansas R&D Facility Mature: 13.6% New: 6.7%
Corporate Headquarters Mature: Wyoming 1st Pennsylvania 50th New: Nebraska 1st Pennsylvania 50th
R&D Facility Mature: Louisiana 1st Pennsylvania 50th New: Louisiana 1st Pennsylvania 50th
Retail Store Mature: Wyoming 1st Pennsylvania 50th New: South Dakota 1st Iowa 50th
Call Center Mature: South Dakota 1st New Jersey 50th New: Nebraska 1st West Virginia 50th
Distribution Center Mature: Wyoming 1st Iowa 50th New: Ohio 1st Kansas 50th
Capital-Intensive Manufacturing Mature: Wyoming 1st Hawaii 50th New: Louisiana 1st Maryland 50th
Labor-Intensive Manufacturing Mature: Wyoming 1st Hawaii 50th New: Louisiana 1st Hawaii 50th
Take Aways There are considerable variations in average corporate tax burdens across the 50 states There are considerable variations in the tax burdens faced by different firm types within each state There are often large differences in tax burdens between mature and new firms within each state CarMax usually has the lowest price
Presenters: Scott Hodge, President, Tax Foundation Hartley Powell, Principal, KPMG Ulrich Schmidt, Sr. Manager, Global Location and Expansion Services, KPMG Glenn Mair, Director, MMK Consulting Questions? Contact Richard Morrison, Media Manager, Tax Foundation: 202-464-5102, Morrison@taxfoundation.org
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