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fy2012 business tax burden study

The Council On State Taxation (COST) is pleased to announce the release of the eleventh annual study of state and local business taxes. The report, "Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2012," prepared by Ernst & Young LLP, shows all state and local business taxes paid in each of the 50 states and the District of Columbia. These taxes include business property taxes, sales and excise taxes on business inputs, gross receipts taxes, corporate income and franchise taxes, unemployment insurance taxes, pass-through business taxes and other state and local taxes that are the statutory liability of business taxpayers. Businesses paid $649 billion in state and local taxes in FY2012.

In addition to presenting tax estimates for the most recent fiscal year, the study also examines business taxes over the past business cycle and describes the impact of the recession and recovery on tax collections.

Key findings of the study include:

  • After falling by 3.4% in FY2009 and 1.1% in FY2010, state and local business taxes grew by 5.7% in FY2011 and 3.9% in FY2012. Total state business taxes increased 5.8% and total local business taxes increased 1.7%.
  • Property tax collections on business property remained flat in FY2012, increasing by an estimated 0.1%. Property taxes paid by business totaled $228.7 billion in FY2012, accounting for 35.3% of total state and local business taxes.
  • Sales tax on business inputs and capital equipment accounted for 21.2% of state and local taxes paid by businesses in FY2012 and totaled $137.4 billion — an increase of 3.1% from FY2011.
  • In FY2012, corporate income tax collections were $49.2 billion, 7.6% of total state and local business taxes. Corporate income tax collections grew by 0.1% in FY2012. Two significant state legislative changes affecting FY2012 collections were the increase in the Illinois corporate income tax rate and Michigan’s switch from a combination income and gross receipts tax on business to a new corporate income tax.
  • Individual income taxes on pass-through business income account for 5.3% of total state and local business taxes, totaling $34.1 million in FY2012 which represents growth of 13.7% from FY2011.
  • On average, business taxes make up 4.8% of private-sector gross state product (GSP) in a state. Private-sector GSP measures the total value of a state’s annual production of goods and services by the private sector. The ratio of business taxes to private-sector GSP ranges from 3.3% in North Carolina to 17.9% in Alaska.
  • When comparing the taxes businesses pay to the estimated value of the benefits they receive from governments, businesses are taxed an average of $3.12 for each dollar of estimated government services they receive, if educational spending is assumed to not directly benefit local business. If one-quarter of educational spending is assumed to benefit business, the ratio drops to $1.70 of tax per dollar of government benefits received by business. When half of education spending is assumed to benefit local business, the ratio falls to $1.20 of tax for each dollar of benefits received.
Click here to view the full study. Questions regarding the study should be directed to Doug Lindholm .