Total Tax Burden By State

“the first to apologize is the bravest – the first to forgive is the strongest- the first to forget to forget is the happiest”

Location Matters was made possible through the generous support of a grant from the John Templeton Foundation. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the John Templeton Foundation.

Table of Contents

Introduction 1

Chapter 1. Objectives and Scope 5

Chapter 2. Firm Overviews & Effective Tax Rates 15

Chapter 3. Effective Tax Rates by State 23

Appendix A. Incentives for Newly Established Operations 75

Appendix B. Tax Comparison Tables 80

Appendix C. Component Tax Rates 87

Appendix D. Methodology 108

Total Tax Burden By State

Intrtroduction

State and local taxes represent a significant business cost for corporations operating in

the United States and can have a material impact on net operating margins. Consequently,

business location decisions for new manufacturing facilities, corporate headquarter

relocations, and the like are often influenced by assessments of relative tax burdens across

multiple states.1

Widespread interest in corporate tax burdens has resulted in a range of studies produced by

think tanks, media organizations, and research groups. None of these other studies, however,

provide comparisons of actual state tax costs faced by real-world businesses.

Some studies compare total tax collections or business tax collections per capita or as a percent of

total tax revenue. The shortcoming of this approach is that collections are not burdens: many

business taxes are collected in one state but paid by companies in other states. Comparing

state collections thus does not accurately portray the relative tax burden that real-world

businesses would incur in each state.

Some studies assess the relative value of tax incentives available for different types of businesses,

such as new job tax credits, new investment tax credits, sales tax exemptions, and property

tax abatements. However, these studies can give the incorrect impression that all businesses

in a state enjoy such incentives. They also do not typically account for increased tax rates for

mature businesses that may be required to support such incentives.

Some studies, including the Tax Foundation’s widely cited annual State Business Tax Climate

Index, define model tax structure principles and measure the state’s tax code relative to those

principles. The State Business Tax Climate Index is a useful tool for lawmakers to understand

how neutral and efficient their state’s tax system is compared to other states and to identify

areas where their system can be improved. However, this does not address the bottom line

question asked by many business executives: “How much will our company pay in taxes?”

An individual firm considering expansion frequently calculates its tax bill in various states, but

these calculations are not often released publicly and are usually confined to a small number

of states.

To fill the void left by these studies, the Tax Foundation collaborated with U.S. audit, tax, and

advisory firm KPMG LLP to develop and publish a landmark, apples-to-apples comparison

of corporate tax costs in the 50 states. Tax Foundation economists designed seven model

firms—a corporate headquarters, a research and development facility, an independent retail

store, a capital-intensive manufacturer, a labor-intensive manufacturer, a call center, and a

distribution center—and KPMG tax specialists calculated each firm’s tax bill in each state.

This study accounts for all business taxes: corporate income taxes, property taxes, sales

taxes, unemployment insurance taxes, capital stock taxes, inventory taxes, and gross receipts

taxes. Additionally, each firm was modeled twice in each state: once as a new firm eligible for

tax incentives and once as a mature firm not eligible for such incentives. Introduction