Fifty-state study shows a 6.1% increase in taxes paid from 2017.
Businesses paid $781 billion in state and local taxes in fiscal year (FY) 2018, an increase of 6.1% from FY17, according to a new study prepared by Ernst & Young LLP (EY) in conjunction with the Council on State Taxation (COST) and the State Tax Research Institute (STRI). The 6.1% increase in FY18 business taxes is more than the increases over the prior four fiscal years combined, which totaled 6% for the entire FY14 through FY17 period.
The 17th annual report, “Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2018,” shows that state business taxes increased by 7.1% and local business taxes grew by 5.1%. Business tax revenue accounted for approximately 43.5% of all state and local tax revenue in FY18.
The study analyzes all state and local business taxes paid in each of the 50 states and the District of Columbia. These taxes include business property taxes, sales and excise taxes paid by businesses on their input purchases and capital expenditures, gross receipts taxes, corporate income and franchise taxes, business and corporate license taxes, unemployment insurance taxes, individual income taxes paid by owners of noncorporate (pass-through) businesses, and other state and local taxes that are the statutory liability of business taxpayers.
Of the categories of taxes included in the analysis, only unemployment insurance taxes declined in FY18. Corporate income taxes rose after two consecutive years of decline, totaling $66.2 billion or 8.5% of all state and local business taxes, up 6.7% from FY17.
“While corporate income taxes continue to represent a relatively small share of state and local business taxes, we are seeing that enactment of recent federal tax reform will result in an increase in corporate tax collections which is expected to increase overall business taxes and the significance of the state corporate income tax,” said Douglas Lindholm, COST President and Executive Director. “However, businesses and policymakers should continue to be aware of the importance of indirect taxes on business.”
Key findings of the study include:
- Property taxes remain the largest state and local tax paid by businesses, accounting for 38% of total state and 76.2% of total local taxes. In FY18, business property tax revenue increased 5.2%, a gain of $14.6 billion.
- General sales taxes on business inputs and capital investments totaled $166.9 billion, or 21.4% of state and local business taxes.
- Individual income taxes on pass-through business income accounted for 6.4% of total state and local business taxes, totaling $6.7 billion, an increase of 15.7% from the previous year.
- Severance taxes increased from $8.9 billion to $12.7 billion, an increase of almost 42%, with the majority occurring in Texas following higher oil prices in FY18.
- Only unemployment insurance taxes experienced a decline during FY18, decreasing by 5%.
“The business share of total state and local taxes are equal to 4.7% of total US private-sector Gross State Product and 117% of government expenditures that benefit business,” said Andrew Phillips, Principal in the Quantitative Economics and Statistics (QUEST) Practice of Ernst & Young LLP. “While the business share of total state and local taxes has remained relatively stable over the past five years, the study demonstrates that, on average, businesses continue to pay more in state and local taxes than they receive in government spending benefiting businesses.”
Click here to find a copy of the study.
You can connect with Andrew Phillips on LinkedIn.
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