State by State Tax Study – Wyoming the best state, Pennsylvania worst
An executive looking for a place to locate his company might do well to consider Wyoming. That state is the most business-friendly in the country, at least when it comes to taxes, according to a new study.
The study, released by the Tax Foundation, found that when all the taxes businesses pay are factored in, Wyoming’s rate is less than half the national average. The state is one of three — Nevada and South Dakota are the others — that doesn’t have a corporate income tax. Pennsylvania, meanwhile, wins the dubious distinction of imposing the heaviest tax burden on its businesses, with an overall effective rate that’s 45% above the national average.
The study, titled “Location Matters,” looked at a range of business taxes — corporate income, sales, property, unemployment, gross receipts and others. The accounting firm KPMG collaborated on the report with the Tax Foundation.
State and local taxes represent a significant business cost for corporations operating in the United States; in fact, they often have a material impact on net operating margins. Consequently, business location decisions for new manufacturing facilities, corporate headquarter relocations, and the like often are influenced by assessments of relative tax burdens across multiple states.
Conclusion: Less taxes, more jobs. Average job growth rate since 2009 is 52% higher in states with lower business tax rates than in states with the highest rates.
State Specific: California
California ranks 34th overall for mature operations and 45th overall for newly established operations. Specifically:
– The operation for which California has the lowest tax burden is the mature R&D center (ranking 11th). This operation has a total effective tax rate (TETR ) of 9.5 percent, roughly 26 percent below the national average. Comparatively, this firm benefits from low property taxes (fifth-lowest nationally) and low income taxes because of the state’s R&D tax credit. The state also ranks well (15th) for the mature distribution center. Low property taxes are the primary driver of this result.
– The state’s highest tax cost for mature operations is for the capital-intensive manufacturing operation, where the state ranks 44th. This operation has a TETR of 18.1 percent, nearly 43 percent above the national average. Similarly, the state ranks 43rd for the mature labor-intensive manufacturing firm. This firm has a TETR of 15.5 percent, more than 33 percent above the national average. This firm has the highest income tax burden of its type in the nation and one of the highest sales tax burdens.
– For new operations, California ranks 49th with the second-highest tax cost for laborintensive operations. This firm has a TETR of 20.3 percent, more than 73 percent larger than the national average. The state also ranks 47th for new capital-intensive manufacturing with a tax burden twice the national average. These firms are hampered by California’s 8.84 percent income tax rate and an apportionment formula that uses a throwback rule. The state also subjects manufacturing machinery to one of the highest sales tax rates in the nation.
– The state also has one of the highest tax burdens for new corporate headquarters, ranking 45th overall. The tax costs for this operation are nearly 35 percent above the national average.
– California is notable for having very few tax incentives for newly established operations, offering only a 15 percent R&D credit.
About the Tax Foundation
Founded in 1937, the Tax Foundation is a nonpartisan, 501 (c )(3) not-for-profit organization dedicated to providing taxpayers and lawmakers reliable data and sound analysis on public finances at the federal, state, and local levels of government.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm, is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 138,000 professionals, including more than 7,900 partners, in 150 countries.
SOURCE: Tax Foundation