PRESS RELEASE: Arkansas Chamber tax study has lessons for Kansas

FOR IMMEDIATE RELEASE
January 6, 2012

CONTACT
Bernie Koch: 316.207.3380 or berniekoch@yahoo.com

A detailed business tax study of eight states shows Missouri has the most competitive tax structure in the region, not Texas, according to Bernie Koch, Executive Director of the Kansas Economic Progress Council.

Koch says the study, done for the Arkansas Chamber of Commerce by Ernst & Young, shows Texas is competitive in a few areas, including business headquarters and support services.  But, the Lone Star State has the highest average effective property taxes on business in the region.

“There are some other surprises here that I hope the Kansas Legislature studies as it reviews the Kansas tax structure,” said Koch.  “I think anybody who looks at it will see that the Ernst & Young study is a very valuable analysis.”

The report looks at the effective tax rate after statutory tax credits on different kinds of businesses in eight states in the region, including Kansas.  The eight states are:  Arkansas, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee, and Texas.  The taxes included are corporate income taxes, franchise taxes, sales and use taxes on business purchases, and local property taxes.

The types of companies considered are corporate headquarters, research and development, manufacturing, food processing, renewable energy, and business support services.

Estimates of state and local business tax burdens by industry come from Ernst & Young’s business tax competitiveness model (BTCM).  The BTCM calculates current state and local business tax burdens imposed on new in-state capital investments, and projects these burdens by year over a 30-year life span.

Some of the findings:

  • Missouri is the real tax competitor in the region, not Texas.  Missouri ranks better than Kansas in competitive tax rates in all categories of business.  In fact, Missouri out-competes all of the other states studied in five of the eight categories: research and development, durable goods manufacturing, food product manufacturing, renewable energy equipment manufacturing, and motor vehicle parts manufacturing.
  • Texas is most competitive in the region for company headquarters and business support services, but scores poorly on tax burden for renewable energy equipment manufacturing.
  • Texas has the highest effective tax rate in the region for motor vehicle parts manufacturing.
  • Kansas beats Texas in both renewable energy equipment manufacturing and motor vehicle parts manufacturing.  Kansas beats all other states studied in these categories except Missouri.
  • Kansas beats Texas slightly on effective tax rate for durable goods manufacturing.
  • Kansas ranks worst in the region for state and local taxes on business support services.
  • Kansas ranks second worst in the region for state and local taxes on research and development operations
  • Effective tax rates vary widely in Kansas by business.  For example, Kansas business support services have an effective tax rate of 19.7% while durable goods manufacturing has an effective tax rate of 8.1%.  Kansas has the highest tax burden in the region for services, but among the lowest for manufacturing.
  • Tax credits in a state make a difference in competitiveness. Kansas’ rank jumps up one position among the states in durable goods manufacturing due to tax credits.  It appears that Kansas would be less competitive in tax structure among these states if business tax credits are eliminated, as some believe will be proposed when the Legislature convenes.
  • Missouri’s tax credits average 27%, the highest of the states studied, and have a significant impact on that state’s business tax rankings.
  • Texas has high effective property taxes in the region in six of the eight categories and is second-highest in the category of renewable energy equipment manufacturing.  The Kansas Economic Progress Council believes Texas high property taxes on business are, in part, the result of the lack of an individual income tax to help fund government services.

Ernst & Young is one of the largest professional services networks in the world and one of the “Big Four” accounting firms.  It says that the tax burden estimates in the study can be used to evaluate how competitive state and local business taxes are for new investments and job creation.  The estimates measure the “additional state and local taxes that a new or expanding business would pay on the capital investment and economic activity” added to a state’s economy.

An executive summary of the study was given to Arkansas lawmakers at an interim Joint Revenue and Tax Committee meeting on November 17.  The complete study was released December 6 to the media and is available online. (Note:  The cover page says DRAFT, but this is the version released to the media.)

Below are two charts from the study, including:

  • Effective tax ratings by industry after tax credits

  • A chart showing overall average effective tax rates, broken out by tax type (Note that in this chart Texas is the overall lowest, but has the highest property tax burden on business of the states in the study.  Kansas property tax burden overall is lower than Texas.)

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