Relocating a business is fraught with many calculations, and the impact of state taxes is a key factor. As an aptly entitled new report finds, location does indeed matter when contemplating a move.
The report, Location Matters: The State Tax Costs of Doing Business, by KPMG LLP and the Tax Foundation, explores the effective tax rates for new and older companies in each state based on seven industry models:
- Corporate headquarters
- Research and development (R&D) facility
- Independent retail store
- Capital-intensive manufacturer
- Labor-intensive manufacturer
- Call center
- Distribution center
The total tax burden includes taxes on corporate income, unemployment insurance, sales, and property, as well as sundry business taxes, such as capital stock and gross receipts, that are levied in some states and cities. To make comparisons easier, the tax burdens are translated into an effective tax rate on net income. That's to allow businesses to know how much pre-tax income would go to pay all state and local tax costs, the report says.
âUnderstanding 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,â Hartley Powell, principal in the Global Location and Expansion Services practice at KPMG, said in a prepared statement.
Tax Foundation economists created the seven models, while KPMG tax specialists determined the tax bill for those model companies in each state â both as new facilities and as mature businesses at least 10 years old.
âDiscussions of business taxes sometimes focus on topline rates while ignoring how those taxes may fall on different kinds of businesses,â said Tax Foundation analyst Jared Walczak. âTax 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.â
Their calculations revealed the following states with the lowest and highest effective tax rates for each business model:
- Corporate headquarters: Wyoming (6.9 percent) and New York (25.3 percent)
- R&D facility: Nebraska (-2.3 percent) and New York (24.8 percent)
- Independent retail store: Wyoming (6.6 percent) and New York (26.5 percent)
- Capital-intensive manufacturer: Iowa (3.9 percent) and Indiana (19.2 percent)
- Labor-intensive manufacturer: Wyoming (4.3 percent) and Rhode Island (14.9 percent)
- Call center: California (11.4 percent) and New Jersey (35.4 percent)
- Distribution center: Wyoming (12.9 percent) and New Jersey (48.2 percent)