Total state and local business taxes
This study presents detailed state-by-state estimates of the state and local taxes paid by businesses for FY17. It is the 16th annual report prepared by Ernst & Young LLP in conjunction with the Council On State Taxation (COST) and the State Tax Research Institute (STRI).
Businesses paid $738.4 billion in state and local taxes in FY17, an increase of 2.0% from FY16. State business taxes increased by 0.4% and local business taxes grew by 3.7%. In FY17, business tax revenue accounted for approximately 44% of all state and local tax revenue. The business share has been within approximately 1 percentage point of 45% since FY03.
The state and local business tax estimates presented in this study reflect tax collections from July 2016 through June 2017 in most states.1 These 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.
Key findings of the study include:
- Both local and state business tax collections increased from FY16 to FY17. Overall state and local business taxes increased 2.0%, with local business tax revenue growing by 3.7% and state business tax revenue increasing by 0.4%.
- Business property tax revenue increased 3.9% in FY17, a gain of $10.9 billion. Property taxes remain by far the largest state and local tax paid by businesses, accounting for 38.9% of the total. Property taxes are also by far the largest local tax paid by businesses (76.4% of all local taxes paid by businesses).
- General sales taxes on business inputs and capital investment totaled $157.4 billion, or 21.3% of state and local business taxes. Overall sales taxes paid by business increased 2.7%.2 Sales taxes on business inputs are the largest state tax paid by businesses (32.4% of all state taxes paid by businesses).
- Corporate income tax collections fell for the second year in a row. In FY17, state and local corporate income taxes totaled $62.7 billion, or 8.5% of all state and local business taxes, down 0.7% from FY16. Certain statewide gross receipts taxes levied in lieu of corporate income taxes are included in this measure.
- Individual income taxes on pass-through business income accounted for 5.3% of total state and local business taxes. State and local individual income taxes on business income fell by 2.9% from FY16.
- Severance taxes increased from $7.7 billion in FY16 to $8.9 billion in FY17, an increase of nearly 15.7%.
- State and local business taxes are equal to 4.5% of total US private-sector gross state product (GSP), which measures the total value of a state’s annual private-sector production of goods and services. There is substantial variation across states, with taxes ranging from 3.4% to 7.5% of private-sector GSP.
- On average, businesses continue to pay more in state and local taxes than they receive in benefits. Businesses paid $3.30 of taxes for every dollar of government spending benefiting businesses, on average, assuming that in-state education spending does not benefit in-state businesses. Using an alternate assumption — that half of in-state education spending benefits in-state businesses — results in businesses paying $1.16 for every dollar of government spending benefiting businesses.
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1. States that follow a different fiscal year are Alabama (ends September 30), Michigan (ends September 30), New York (ends March 31) and Texas (ends August 31). Data presented in this study are for each state’s fiscal year.