Firms Paying State, Local Governments 5.5% More In Income Tax

by Mike Godfrey, Tax-News.com, Washington

16 September 2003

A new study by Ernst & Young has revealed corporate taxes paid by firms to local and state governments jumped $20 billion in the 2003 fiscal year, representing a 5.5% hike for the year that ended June 30.

The study, which was commissioned by corporate lobby group COST (The Council on State Taxation) backed by firms such as General Motors and American Express, has reasoned that much of the increase can be put down to increased profits and changes in taxation law.

According to the findings of the study, the total amount paid in taxes by the corporate sector to local and state taxing authorities hit $400 billion in 2003, representing 43% of all state and local revenue. This was a 2% increase on the 2000 figures which showed firms accounting for 41% of local/state revenues.

The conclusions of the study are somewhat of a rebuttal of a similar survey published by the Multistate Tax Commission in July which alleged state governments were struggling to balance their books as a result of rampant tax sheltering in the corporate sector. However, COST contends that this study concentrated on corporate income tax which represents only a small proportion of total revenues received by state tax collectors and is therefore misleading.

The MTC report revealed that as much as $12.4 billion in corporate income taxes may have been lost to state governments in 2001 as a result of tax shelter use and loopholes in the US tax code and concluded that: "The lost revenue attributable to domestic and international income tax sheltering is adding to the size of state budget deficits while undermining the equity and integrity of state tax systems."

However, COST's findings firmly reject this conclusion, stating: "The study grossly overstates the state corporate income revenue loss attributable to taxpayer activity designed to evade or avoid the intent of enacted legislation,"

"Corporate income taxes represent a scant nine percent of the total. Focusing on the corporate income tax, to the exclusion of the 91% of business taxes that are not income taxes, is to miss the forest for the trees," said the COST report.

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