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Firms Paid 10% More In US State And Local Taxes In 2006

by Mike Godfrey, Tax-News.com, Washington

07 March 2007


Businesses paid $554 billion in state and local taxes in fiscal year 2006, a 10% increase on the previous year, according to the results of a newly-released study.

The annual report, prepared by Ernst & Young LLP in conjunction with the Council On State Taxation (COST), contains estimates of taxes paid by major industry groups, such as property tax, sales tax, excise and gross receipts taxes, corporate income and franchise taxes, license taxes, unemployment insurance taxes, and individual income taxes on pass-through business income.

The study found that business taxes represented 45% of total taxes collected by all state and local governments. Property taxes were the largest state and local business tax, accounting for $205 billion in 2006, representing 37% of total state and local business taxes. Sales taxes on business inputs were the second largest state and local business tax, accounting for $125 billion in 2006, or 23% of total state and local business taxes. The report noted that although most people think sales taxes fall on retail sales to consumers, 43% of those taxes fall on business purchases of machinery and supplies.

Corporate income tax totaled $52 billion in 2006, representing only 9% of total state and local business taxes nationally, even after rising 76% since 2002. When individual income taxes paid by owners of non-corporate businesses are included, state and local income taxes on business account for 13% of total state and local business taxes.

Over the last four years, state and local taxes on business rose faster than total state and local taxes. As a result, businesses have paid a major portion of the additional state and local taxes collected. Businesses paid 49% of the entire increase in state and local taxes from fiscal year 2002 to 2006.

The composition of total state and local business taxes paid varies by industry, with manufacturing and transportation continuing to face significant property and sales taxes on business property. Traditionally-regulated businesses pay significant industry-specific excise and gross receipts taxes.

“Although corporate income and payroll taxes have increased sharply since 2002 with the rebound in the economy, property taxes and sales tax on business inputs still account for 60% of state and local business taxes,” observed Robert Cline, National Director of State and Local Tax Policy Economics at Ernst & Young.

“Non-income taxes are important costs of doing business in a state for both company executives competing in national and global markets as well as policymakers trying to retain and attract economic development to their state," he added.

Douglas L. Lindholm, President & Executive Director of COST, noted: “State legislative debates regarding business taxes will benefit from a greater understanding of the taxes businesses are currently paying. This study will provide policymakers and the public with a factual basis to evaluate the current state and local business tax burden.”


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