COST Releases 2018 State and Local Business Tax Burden Study - Timely Report Coincides with MT Chamber Business Tax Analysis by STRI
Businesses paid $738.4 billion in state and local taxes in FY2017, an increase of 2% from FY2016. State business taxes increased by 0.4%, and local business taxes grew by 3.7%.
Montana saw a 0.8 percent increase in state and local business taxes from 2016-17.
A study reflecting the increases is part of The Council On State Taxation (COST) and the State Tax Research Institute’s(STRI) sixteenth annual study of state and local business taxes.
The report, Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2017, prepared by Ernst & Young LLP, shows all state and local business taxes paid in each of the 50 states and the District of Columbia. These taxes include business property taxes; sales and excise taxes paid by businesses on their input purchases and capital expenditures; gross receipts taxes; corporate income and franchise taxes; business and corporate license taxes; unemployment insurance taxes; individual income taxes paid by owners of non-corporate (pass-through) businesses; and other state and local taxes that are the statutory liability of business taxpayers.
In FY2017, business tax revenue accounted for approximately 44% of all state and local tax revenue. The business share has been within approximately 1% of 45% since FY2003. “The study continues to be a significant and timely contribution to the tax policy debate,” says Douglas Lindholm, President and Executive Director of COST, “because it allows policymakers to evaluate state and local business tax burdens beyond corporate income taxes and provides a more accurate picture of business tax burdens than commonly perceived.”
The total effective business tax rate (TEBTR) imposed on business activity by state and local governments is measured as the ratio of state and local business taxes to private-sector gross state product (GSP), the total value of a state’s annual production of goods and services by the private sector. The average TEBTR across all states is 4.5%.
Missouri had the lowest TEBTR at 3.4%. Missouri has low corporate income, excise, and license taxes compared to economic activity. Missouri is also less reliant on business taxes, instead generating a greater share of tax revenue from households rather than businesses. Michigan has the second lowest TEBTR at 3.5%.
Property taxes paid by businesses have declined in Michigan the past few years due to elimination of industrial personal property taxes and exemptions for some commercial personal property. Indiana’s TEBTR of 3.5% is explained in part by low property and sales taxes paid by businesses. Both Michigan and Indiana have strong manufacturing sectors and provide sales tax exemptions for input purchases that are used in the production of final goods. Businesses in these states pay a lower share of sales taxes than the national average.
Connecticut also has a low TEBTR, explained in part by the several high-output industries, such as insurance, financial services and aerospace, which generate a large amount of GSP for the state. Business taxes per dollar of GSP are significantly below the national average for this reason. Additionally, Connecticut relies on individual income taxes for a significant share of its total state and local taxes, which are mostly paid by households.