Taxes and Business Location Decisions

March 28, 2006

How much do taxes matter for business location, compared with other things like labor, utilities and transportation costs? As outlined in our recent State Business Tax Climate Index, an enormous amount of ink has been spilled over the years trying to definitively answer that question.

The latest addition to the “how much do taxes matter” literature comes from KPMG’s “Competitive Alternatives” study, which provides a detailed analysis of international business costs—including taxes.

Bottom line: “Taxes represent 7-13 percent of total location-sensitive costs for manufacturing operations, and three to seven percent for non-manufacturing operations.” That means, according to KPMG, taxes are comparable in economic importance to both utility and transportation costs.

Here’s their executive summary and a summary graphic:

2006 Edition Competitive Alternatives represents KPMG’s guide for comparing business costs in North America, Europe and Asia Pacific. The 2006 study is the most thorough comparison of international business costs ever undertaken by KPMG, and contains valuable information for any company seeking cost advantage in locating their international business operations.

The study is an expansion and update of previous KPMG publications, and measures the combined impact of 27 significant business cost components that are most likely to vary by location. The study covers 17 industry operations in nine industrialized countries: Canada, France, Germany, Italy, Japan, the Netherlands, Singapore, the United Kingdom and the United States.

Download the full study here.

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