study: total state and local business taxes (fy16)

The Council On State Taxation (COST) and the State Tax Research Institute (STRI) are pleased to announce the release of the fifteenth annual study of state and local business taxes. The report, “Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2016,” 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 $724.1 billion in state and local taxes in FY2016, an increase of 0.9% from FY2015. State business taxes fell by 1.4% compared to local business tax growth of 3.4%. In FY2016, 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.”

Other key findings of the study include:

  • Business property tax revenue increased 4.5% in FY16, a gain of $11.9 billion. Property taxes remain by far the largest state and local tax paid by businesses, accounting for 38.4% of the total. Property taxes are also by far the largest local tax paid by businesses (accounting for 76.8% of all local taxes paid by businesses).
  • General sales taxes on business inputs and capital investment totaled $153.9 billion, or 21.3% of state and local business taxes. Overall sales taxes paid by business increased 1.8%. Sales taxes on business inputs are the largest state tax paid by businesses (accounting for 31.9% of all state taxes paid by businesses).
  • In FY16, corporate income and statewide business gross receipts tax revenue was $63.2 billion, or 8.7% of all state and local business taxes (a decrease of 5.6% from FY16). FY16 was the first year state corporate income taxes fell since FY2010. However, state corporate income tax revenue did not decline by as much as federal corporate income taxes (which fell by 14% during the same period, following a downward trend in corporate profits in the third and fourth quarters of 2015).
  • Individual income taxes on pass-through business income accounted for 5.6% of total state and local business tax revenue. Individual income tax revenue on business income increased by 3.3% in FY16.
  • Severance taxes decreased from $12.7 billion in FY15 to $7.7 billion in FY16, a decline of almost 39%.
  • On average, business taxes are equal to 4.5% 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 3.5% to 7.5%.
  • On average, businesses continue to pay more in state and local taxes than they receive in benefits from governmental spending. Businesses paid $3.13 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 $1.11 for every dollar of government spending benefiting businesses.

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