Report: State tax burden tough on business
New York has one of the least business-friendly climates in the nation, according to a new report that provides a state-by-state analysis of state tax costs on business.
Called “Location Matters,” the report ranks states based on their corporate tax burdens. It provides two separate rankings: one for established firms, and another for new firms. New York lands near the bottom of the report’s rankings, ranking 42nd for mature firms and 27th for newly established firms.
Ken Pokalski, vice president of government affairs at the Business Council of New York State, said these findings support the Business Council’s complaint that New York’s corporate tax burden is too high.
“Costs matter, and taxes are a cost,” Pokalski said. “In places that have made an effort to support certain kinds of development, it’s had an impact.”
According to the report, New York performs well in one area. The state ranks third for established and capital-intensive manufacturing operations, with a tax burden roughly 58 percent below the national average.
The report attributes the state’s success in this area to several factors, including a special 6.5 percent income tax rate for manufacturing. New York ranks 10th for new capital-intensive manufacturing, with a tax burden roughly 45 percent below the national average, according to the report, which was put together by the Washington, D.C.,-based Tax Foundation.
But New York lands near the bottom in other categories.
The state ranks 49th in two categories of established firms: corporate headquarters, which have a tax burden that is 59 percent above the national average, and research and development facilities, which have a tax burden 87 percent above the national average. And it ranks 48th in two categories of new firms: corporate firms and R&D.
Scott Hodge, president of the Tax Foundation, which studies tax policy at the state and federal levels, said that New York has had some success at crafting policies that attract new businesses, but that it needs to do a better job of retaining them, and that one way of doing this would be to lower the corporate tax burden.
“Once you lure businesses in, you need to have the kind of tax system that will keep them there,” Hodge said.
Hodge said he’d like to see more equity in the corporate tax systems. He suggested that it’s unfair for established companies to pay “full freight,” while newer companies receive tax preferences and incentive deals. “We see tremendous variation in tax rates within a state,” he said. “Ideally there should be equity in the tax system.”
One critic of the Tax Foundation report is Frank Mauro, an economist with the Fiscal Policy Institute in Latham.
Mauro said that the report wrongly links the state’s economic development to its tax burden, noting that in 2010 New York experienced the second-fastest growth in gross domestic product out of all the 50 states. “It implies that there’s some relationship between a state’s tax system’s rankings and how its economy is doing,” Mauro said. “But that doesn’t square with reality.”
In recent years, the Capital Region has emerged as a hot spot for new jobs in the nanotechnology field, with the arrival of the GlobalFoundries computer chip plant in Malta and the creation of a world-renowned academic-industrial research program at the University at Albany.
Pokalski said public financing helped establish the University at Albany program, rather than incentives in the tax code, and that GlobalFoundries was brought to the area with the help of the Empire Zone program. The Empire Zone program provided tax breaks to new businesses, but was closed down in 2010 following a scandal in which politically connected companies were found to have received tax breaks despite failing to create new jobs.
According to the report, the states that rank best overall for mature firms were Wyoming, South Dakota, Georgia, Nevada and Ohio. The lowest ranked states included Pennsylvania, Hawaii, West Virginia, Kansas and Rhode Island.
The Tax Foundation describes the report as “a guide for anyone making decisions about new manufacturing facilities, corporate headquarter relocations or state government affairs. It highlights the sometimes surprising differences in how different kinds of businesses are taxed within the same state.”
“Hopefully this report will prompt a thorough review of state business tax system,” Hodge said.
Pokalski said the Business Council plans to call people’s attention to the Tax Foundation report.
“We can improve our tax code to support economic growth in New York state,” Pokalski said.
In New York, the main corporate income tax rate is 7.1 percent.