But when it comes to New York, a tax burden 85 percent above the national median means the Empire State ranks last in tax competitiveness according to a study released last week by the Washington D.C.-based Tax Foundation and KPMG.
The report -- co-authored by KPMG and titled “Location Matters” -- seeks to provide “the tools necessary to understand each state’s business tax system and the burdens it imposes, offering a roadmap for improvement.” Economists from the Tax Foundation designed seven “model firms” and KPMG tax specialists calculated each firm’s tax bill in each state, taking into account corporate income taxes, property taxes, sales taxes, unemployment insurance taxes, capital stock taxes, inventory taxes, and gross receipts taxes.
Wyoming came out on top in the research, citing the right mix of tax incentives and economic foundations.
“The state focuses more on low statutory tax rates than targeted incentives, hence its better rankings for mature operations than for new firms and the advantages it offers to firms with longer time horizons,” the study states. “[The] mature capital-intensive manufacturing operation ranks third with an effective tax rate of 4.1 percent due to the second lowest income tax burden in the nation and modest sales and property taxes, and despite a high unemployment insurance tax burden.”
New York State’s tax regime is made even more burdensome by its commuter-heavy workforce and a focus on a service economy.
“New York’s single sales factor apportionment and lack of a throwback rule help mitigate the impact of the state’s 7.1 percent corporate income tax for firms selling tangible goods out of state,” the study argues. “However, since the state sources service income to the location where income-producing activity took place, service sector firms working for out-of-state clients experience the full weight of the state’s corporate income taxes.”
The goal of the study, according to the authors, is to help business and governments make better decisions regarding headquarters location including and tax implications, and for “CEOs, CFOs, and other corporate stakeholders [to] better evaluate the relative competitiveness of states in which they operate or states in which they are contemplating business investments.”