"The study is a significant and timely contribution to the tax policy debate 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," said Douglas Lindholm, President and Executive Director of COST.
Now in its 14th year, the annual study analyzes all state and local business taxes paid in each of the 50 states and the District of Columbia in 2015. 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.
Key findings of the study include:
- Revenue from state and local business taxes increased from FY14 to FY15. Overall state and local business tax revenue increased 1.9%, with state business tax revenue growing by 1.0% and local business tax revenue growing 2.9%.
- Business property tax revenue increased 2.8% in FY15, a gain of $7.0 billion. Property taxes remain by far the largest state and local tax paid by businesses, accounting for 36.5% of the total.
- General sales taxes on business inputs and capital investment totaled $150.6 billion, or 21.3% of state and local business taxes. Overall sales taxes paid by business increased 4.9%.
- In FY15, state and local corporate income and business gross receipts tax revenue was $67.3 billion, or 9.5% of all state and local business taxes. FY15 marked the fifth consecutive year of corporate income and business gross receipts tax growth. Overall corporate income and business gross receipts tax revenues increased by 4.1%.
- Individual income taxes on pass-through business income accounted for 5.5% of total state and local business tax revenue. Individual income tax revenue on business income increased by 4.1% in FY15.
- Severance taxes decreased from $18.0 billion in FY14 to $12.8 billion in FY15, a decline of almost 29%.
- On average, business taxes are equal to 4.6% of private-sector gross state product (GSP), which measures the total value of a state's annual private sector production of goods and services. The data reflect a substantial variation, with ratios ranging from 3.4% to 9.9%.
- Businesses continue to pay more in state and local taxes on average than they receive in benefits from governmental spending. Businesses paid $3.07 for every dollar of government spending benefiting businesses, on average, assuming that education spending does not benefit local businesses. An alternate assumption, that half of education spending benefits local businesses, results in businesses paying $1.12 for every dollar of government spending benefiting businesses.
"We see that government spending that benefits business increased between 2014 and 2015, while overall net state and local expenditures grew at a slower rate," said Andrew Phillips, Principal in the Quantitative Economics and Statistics (QUEST) Practice of Ernst & Young LLP. "As a result, businesses received a slightly larger share of the benefit of government spending in 2015."
A copy of the study is available at ey.com/us/salt
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This news release has been issued by Ernst & Young LLP, a member firm of EY serving clients in the US.
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