It Takes 175 hours for a U.S. Business to Comply with U.S. Taxes

May 01, 2014

The real cost of taxation goes beyond the amount that is written on the check to the IRS. Another important cost of taxation is compliance. Compliance is the real cost associated with just calculating and making the payment. These costs can be substantial, especially for businesses.

One way of measuring the compliance costs associated with taxation for businesses is to measure the number of hours it takes a business to calculate and pay its taxes. Taking the time to just figure out what you owe, calculate it, then send it in, requires a business to give up a more productive activity: one hour of tax preparation is one fewer of research and development.

In total, a U.S. business needs to devote 175 hours a year to comply with corporate, labor, and sales taxes every year. This is about the middle of the pack for the OECD. To put this in perspective, this would take one person more than 4 full-time weeks to comply with these taxes. Now imagine the total cost to the economy when you consider there are more than 20 million active businesses in the United States.

PWC in their Doing Business annual report estimates the time it takes a “case study” business to comply with three taxes: corporate income taxes, labor taxes, and consumption taxes. These compliance times are calculated by constructing a hypothetical firm. They then make assumptions about what sorts of transactions the business will perform and the amount and type of business it will do during the year.

The table below displays the compliance time results from the 2014 Doing Business report for corporate income taxes, labor taxes, and consumption taxes for OECD countries.

The United States’ worst rank is on its corporate income tax. It takes the case study business 87 hours per year to comply with just the corporate income tax. This is the 6th longest time in the OECD and 35 hours longer than the average OECD country.

The United States is in the middle of the pack in compliance time with labor taxes. It takes the hypothetical business an average of 55 hours a year to comply with the taxes it has to pay to the government on behalf of its workers (for example: employer-side social security tax). This is 20 hours faster than the average OECD country.

The United States ranks best in regard to compliance time with consumption taxes. It takes the business an average of 33 hours a year to comply, which is about 23 hours faster than the OECD average (56.5 hours).

Of course, the “typical” business is not all businesses. Certainly there are businesses—especially large multinational corporations—that have to devote many more hours to comply with taxes.

Time it Takes a Case Study Business to Comply with Taxes in the OECD, 2014 (Hours Per Year)

OECD Country

Corporate Tax Compliance

Labor Taxes Compliance

Consumption Taxes Compliance

Total Compliance

 

Rank

Time

Rank

Time

Rank

Time

Rank

Time

Australia

20

37

32

18

16

50

28

105

Austria

13

47

22

52

12

67

18

166

Belgium

30

20

26

40

6

100

19

160

Canada

14

45

30

36

15

50

23

131

Chile

15

42

6

125

1

124

4

291

Czech Republic

4

94

1

217

3

102

1

413

Denmark

26

25

14

65

20

40

24

130

Estonia

31

20

31

34

28

27

31

81

Finland

29

21

24

48

32

24

29

93

France

25

26

13

80

29

26

22

132

Germany

17

41

5

134

19

43

12

218

Greece

8

78

25

46

11

69

14

193

Hungary

22

35

3

146

8

96

6

277

Iceland

18

40

19

60

21

40

21

140

Ireland

34

10

28

40

27

30

32

80

Israel

3

110

18

60

13

65

10

235

Italy

19

39

2

198

26

32

8

269

Japan

2

155

4

140

23

35

3

330

Korea

7

82

11

80

30

25

15

187

Luxembourg

32

19

34

14

33

22

34

55

Mexico

1

170

15

64

5

100

2

334

Netherlands

27

25

16

64

24

34

25

123

New Zealand

23

34

20

59

14

59

20

152

Norway

28

24

33

15

18

44

30

83

Poland

10

62

7

124

4

100

5

286

Portugal

9

63

8

116

9

96

7

275

Slovak Republic

16

42

17

62

2

103

13

207

Slovenia

5

90

9

96

10

74

9

260

Spain

24

33

10

90

17

44

17

167

Sweden   

11

50

29

36

22

36

26

122

Switzerland

33

15

27

40

34

8

33

63

Turkey

12

49

12

80

7

97

11

226

United Kingdom

21

37

23

48

31

25

27

110

United States

6

87

21

55

25

33

16

175

Average

 

52.0

 

75.9

 

56.5

 

184.4

 

For information on how PWC calculates these numbers

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