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study: total state and local business taxes (fy14)

The Council On State Taxation (COST) is pleased to announce the release of the thirteenth annual study of state and local business taxes. The report, "Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2014," 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.

Businesses paid more than $688 billion in state and local taxes in FY2014, an increase of 2.2% from FY2013.  State business taxes grew less quickly than local taxes, with state taxes growing 1.5% compared to local tax growth of 3.1%.  In FY 2014, business tax revenue accounted for 45% of all state and local tax revenue.  The business share has been within one percentage point of 45% since FY2003.  “The study is 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.”    

Key findings of the study include:

  • Revenue from state and local business taxes increased from FY2013 to FY2014. Overall state and local business tax revenue increased 2.2%, with state business tax revenue growing by 1.5% and local business tax revenue growing 3.1%.
  • Business property tax revenue increased 3.2% in FY2014, a gain of $7.8 billion. Property taxes remain by far the largest state and local tax paid by businesses, accounting for 36.4% of the total.
  • General sales taxes on business inputs and capital investment totaled $142.8 billion, or 20.7% of state and local business taxes. Overall sales taxes paid by businesses increased 4.3%.
  • In FY2014, state and local corporate income tax revenue was $64.4 billion, or 9.4% of all state and local business taxes. FY2014 marked the fourth consecutive year of corporate income tax growth.
  • Individual income taxes on pass-through business income accounted for 4.9% of total state and local business tax revenue. Individual income tax revenue on business income decreased 4.8%, the largest decrease of any tax in FY2014.
  • 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. There is substantial variation among states, with business tax revenue as a share of GSP ratios ranging from 3.4% to 11.5%.
  • On average, businesses continue to pay more in state and local taxes than they receive in benefits. Businesses paid $3.35 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 $1.23 for every dollar of government spending benefiting businesses.
  • Businesses paid 10.6% of their gross operating surplus (similar to net profits) in state and local taxes in 2014.

Click here to view the full study. Questions regarding the study should be directed to Doug Lindholm.