State Tax Reforms Could Boost Burden on Business
Continued economic and budget pressures could accelerate tax reform efforts at the state level over the next few years, according to Ernst & Young. In some cases this could mean businesses paying more taxes to offset tax reductions for homeowners.
Increased national and international competition, rising expenditure needs and concerns over the longer-run viability of corporate income taxes, are causing a number of states to reevaluate their business tax systems, E&Y notes in a new wbite paper Future State Business Tax Reforms.
Business tax changes over the next few years are likely to be a blend of states attempting to preserve or expand the existing corporate income tax base and a few states adopting fundamentally new business tax systems, E&Y says. “While no single factor can predict whether a state will undertake business tax reform, the
presence of certain elements may indicate a high-probability of significant changes in state business tax systems.” These elements include:
- The presence of current or recent state tax reform commissions (Georgia, Maryland, Massachusetts, North Carolina, and Pennsylvania)
- Continued reductions in manufacturing employment,
- Efforts to increase taxes on services,
- Large projected budget deficits (combined with inadequate budget reserves),
- The perception of significant tax-planning opportunities, and
- The level and rate of increase of property taxes.
While the timeline for future business tax changes is unclear, continued economic and budget pressures could accelerate state tax reform efforts over the next few years.
Florida, Georgia, Indiana and Illinois are examples of states that are currently considering alternative revenue sources to pay for substantial property tax reductions for homeowners, E&Y says. Unlike the business property tax reductions in the tax reform packages in Ohio, Texas and Michigan, “reform” in these states may result in business taxpayers paying higher state and local business taxes to pay for property tax relief for homes.
In addition to their local property tax problems, states are beginning to forecast both short-run and long-run budget deficits, the report finds. “While the deterioration of state budget balances presents the substantial risk of higher state business taxes, it may also present the opportunity to reevaluate and reform current business tax systems to increase tax competitiveness and long-run economic growth.”
A third state budget challenge that could focus more attention on business tax reform is the search for an effective way to tax the consumption of services. Options states are considering include extending sales and use taxes to more services, adopting separate excise taxes on services, and adopting alternative tax bases, such as gross receipts, that would indirectly tax services.
Regardless of the option considered, attempts to tax services purchased by business raises the issue of tax pyramiding.
In the report E&Y has broadened the focus of its 50-State Business Tax Study state tax analysis beyond corporate income taxes and has directed more attention to the combined effects of total business taxes. The figure above shows the state-by-state variation in total state and local business tax rates, one measure of the size of business tax burdens. The total business tax rate (TTR) is measured as the ratio of total business taxes to state private-sector gross state product (GSP), the total value of a state’s annual production of goods and services (value added).
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January 4th, 2008 at 12:52 am
I just do not understand why people keep talking about business paying taxes. Business does not pay taxes. People pay taxes. So, when we want to shift taxes to business we just are deceiving ourselves. The reason business wants to move to a state with lower taxes is that they make their product or service more affordable and more competitive.
Tax increases say more about the politicians than sanity. When they deliver on their promises we are all in trouble. Their job is to provide reasonable services at a reasonable price. Their unwillingness to do that and reduce the amount of waistfull and unnecessary spending makes raising taxes inevitable – certainly in Michigan which requires a balanced budget.
Taxes will continue to be the solution until taxpayers become louder and more important than special interest groups.