Each year, the Council on State TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. ation (COST) estimates the share of total state and local taxes that are paid by businesses. The lastest edition of the report found that firms paid 44.9 percent of total U.S. state and local taxes last year—amounting to nearly $671 billion.
Here’s the breakdown by tax type (click to enlarge and share):
Of the $670.8 billion in total business taxes, most went to property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es on business property ($242.1 billion), followed by sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es on business inputs ($139.8 billion). In a perfect world, businesses wouldn't pay sales taxes. My colleague, Scott Drenkard, summed this up eloquently a few years ago:
Business inputs (products that businesses buy so that they can make other things) should be exempt from sales taxes. This is not because businesses deserve special treatment, but because taxing business inputs results in “tax pyramidingTax pyramiding occurs when the same final good or service is taxed multiple times along the production process. This yields vastly different effective tax rates depending on the length of the supply chain and disproportionately harms low-margin firms. Gross receipts taxes are a prime example of tax pyramiding in action. ,” the problem where one tax applied many times on a supply chain results in a high effective tax rate at the end of the supply chain. Taxation of business inputs results in the unequal (or non-neutral) treatment of industries or companies that have many capital inputs…
It's also important to note that corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es, though they are the most familiar business tax, are only a small share of the total tax bill firms pay each year. But don't confuse this fact for an argument to increase corporate income tax rates–corporate income taxes are an inefficient tool for collecting state tax revenue due to their low growth and high volatility.
For more information on the types of business taxes outlined in the report, the changes from 2012 to 2013, and a state-by-state breakdown, check out COST's full report here.
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