TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, March 4, 2012

A Comparative Analysis of State Tax Costs on Business

LocationThe Tax Foundation and KPMG have released a 198-page study, Location Matters: A Comparative Analysis of State Tax Costs on Business:

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.

Widespread interest in corporate tax burdens has led to a number of studies from a variety of think tanks, media organizations, and research groups. None of these studies, however, provide comparisons of actual state business tax burdens.

To fill the void left by these studies, the Tax Foundation, in collaboration with KPMG LLP, the U.S. audit, tax and advisory firm, set out to develop and publish a landmark, apples-to-apples comparison of corporate tax costs in the 50 states. Tax Foundation economists designed seven model firms, and KPMG modeling experts calculated each firm’s tax bill in each state. The study accounts for all business taxes: corporate income taxes, property taxes, sales taxes, unemployment insurance taxes, capital stock taxes, inventory taxes, and gross receipts taxes. Additionally, each firm was modeled twice in each state: once as a new firm eligible for tax incentives, and once as a mature firm not eligible for such incentives.

Tax Foundation economists then used the raw model results to perform the ensuing industry and state comparisons. The result is a comprehensive calculation of real-world tax burdens.

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