US Cities Fare Well In Business Tax Study

by Leroy Baker, Tax-News.com, New York

28 August 2008

San Juan, Puerto Rico, Baltimore and Atlanta have the most favorable tax structures for businesses among US cities/locations with populations exceeding 2 million, according to a recently-released study by KPMG International.

Of the 35 large international cities highlighted in the study, San Juan, Baltimore and Atlanta all rank in the top ten – first, eighth and ninth, respectively. And among the 10 countries in the study, the US ranked fifth in terms of the favorability of its overall tax structure for business.

KPMG’s 2008 Competitive Alternatives: Focus on Tax study is a global comparison of the total tax burden that may be faced by companies in 102 cities throughout 10 countries including corporate income taxes, capital taxes, sales taxes, property taxes, miscellaneous local business taxes and statutory labor costs. The study is intended to provide a guide for companies wanting to compare the tax burden they may incur in different cities around the world.

“Cities across the United States recognize that attracting and retaining businesses of all sizes is important for a vibrant local economy,” said Hartley Powell, national leader of the Strategic Relocation and Expansion Services practice at KPMG LLP, the US member firm of KPMG International. “As the survey results indicate, certain cities are leaders in developing a tax environment that encourages business development, and tax costs are a key consideration in the site selection process.”

According to the study, San Juan (Puerto Rico) had a total tax index of 46.6 representing tax costs 53.4% below the US national average of 100.0. San Juan was followed by Baltimore and Atlanta at 92.1 and 95.1, respectively. Other high-ranking large US cities included Tampa, Fla. (98.1), Detroit (98.6), and Phoenix (98.8).

America's largest cities, however, did not fare so well by comparison. Los Angeles ranked 15th with a a score of 105.1, Chicago 16th (105.3) and New York 20th (109.2).

The results of the study also vary depending on the type of business. As a location for R&D operations, the three cities with the most cost effective tax structure in the large-sized city category were San Juan (61.8), Baltimore (88.4), and Portland, Ore. (88.5).

For manufacturing operations, where property taxes and taxes on equipment and capital are of interest, the three, large-sized US cities with the most cost-effective tax structure were San Juan (42.4), Baltimore (91.3), and Atlanta (95.3).

The services industry, on the other hand, tends to be most affected by statutory labor costs. The top three, large-sized US cities with the most favorable tax structure for services included San Juan (65.5), Atlanta (92.7) and Baltimore (94.2).

In the mid-sized city category (populations between 500,000 and 2 million), the top cities included Omaha, Neb. (94.2), Greenville-Spartanburg, S.C. (95.2), Little Rock, Ark. (95.7), Milwaukee, Wis. (96.0), Youngstown, Ohio (97.1), Raleigh, N.C. (98.1), McAllen, Texas (98.5), Buffalo, N.Y. (98.9), and Salt Lake City, Utah (99.1).

In the small-sized city category (populations between 100,000 and 500,000), the top cities included Saginaw, Mich. (92.0), Cheyenne, Wyo. (92.1), Cedar Rapids, Iowa (92.1), Sioux Falls, S.D. (92.8), Shreveport, La. (92.9), Lexington, Ky. (93.0), and Montgomery, Ala. (95.2).

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