State and local taxes represent a major cost for businesses, and the tax burden varies greatly between different states and industries. The widespread interest in state corporate tax burdens has resulted in a variety of studies that focus on things like business tax collections per capita, the value of tax incentives for different businesses, or the relative ranking of a state’s business tax code. None of the studies, however, provide business leaders or policymakers with a comparison of actual state tax burdens faced by real-world businesses.

This morning, the Tax Foundation released a study in collaboration with KPMG LLP, the U.S. audit, tax and advisory firm, which fills this information gap. Location Matters: The State Tax Costs of Doing Business is the leading, apples-to-apples comparison of actual state tax burdens faced by real-world businesses. The study not only examines the different tax rates faced by different types of businesses, but also highlights how tax codes treat new and previously established firms within each state. Tax Foundation economists created seven model firms in different industries, and KPMG tax specialists calculated the tax bill for those firms in each state, both as new facilities and as mature firms (ones that are at least 10 years old).

The states with the lowest and highest effective tax rates on the different mature model firms are:

• Call Center: California (11.4%) and New Jersey (35.4%)

• Retail Store: Wyoming (6.6%) and New York (26.5%)

• Distribution Center: Wyoming (12.9%) and New Jersey (48.2%)

• Corporate Headquarters: Wyoming (6.9%) and New York (25.3%)

• Labor Intensive Manufacturer: Wyoming (4.3%) and Rhode Island (14.9%)

• Capital-Intensive Manufacturer: Iowa (3.9%) and Indiana (19.2%)

• Research and Development Facility: Nebraska (-2.3%) and New York (24.8%)

“Discussions of business taxes sometimes focus on topline rates while ignoring how those taxes may fall on different kinds of businesses,” said Tax Foundation Policy Analyst Jared Walczak. “Tax reform discussions often focus on lowering the tax burden on business in general. However, it’s also crucial to address the tax code’s treatment of new and mature businesses in different industries.”   

The study’s key findings include:

• States with low statutory tax rates can still impose high effective tax burdens due to factors such as tax incentive, apportionment, and throwback rules.

• Corporate income taxes are just one part of a business’s tax burden. Sales, property, and unemployment insurance taxes can also impose significant burdens on businesses.

• Tax Incentives chiefly benefit new firms, often to the disadvantage of established operations.   

• Incentive-heavy tax systems can reduce tax equity even among newly-established firms.  

• Different firm types experience dramatically different effective tax rates.

• The impact of corporate income and gross receipts taxes depends heavily on structure and firm type.

Hartley Powell, principal in the Global Location and Expansion Services practice of KPMG LLP, said: "Understanding a location’s unique tax landscape can help companies operate more efficiently and effectively in both their existing locations and in new ones they might be considering. “The Location Matters report is a comprehensive calculation of real-world tax obligations in all 50 states that can better inform companies’ overall location decisions.”