The Tax Foundation this month published what it calls a “landmark comparison” of corporate tax costs in all 50 states. It’s certainly the most comprehensive study of its kind and was done in collaboration with KPMG, the accounting, tax and advisory firm. The full study is here and includes lots of interactive tools and comparisons.
The study calculates and analyzes the tax burdens of eight model firms: a corporate headquarters, a research and development facility, a technology center, a data center, a shared services center, a distribution center, a capital-intensive manufacturer, and a labor-intensive manufacturer. Each firm is modeled twice, first as a new operation eligible for tax incentives and then as a mature operation not eligible for such incentives.
The result is a comprehensive calculation of real-world tax burdens designed as a resource for policymakers, corporate executives, trade organizations, site-selection experts, and media organizations.
Because the study looks at different types of businesses at different states of maturity, it’s a bit unfair to summarize its results, but here is what it says about Illinois:
Illinois ranks in the bottom third of states for six out of the eight mature firm types, driven by high corporate income and property taxes, while new firms face middle-of-the-road tax burdens. Illinois offers one of the more generous withholding tax credits in the nation, but incentives are rarely a substitute for a competitive, structurally sound tax system.
Illinois’ corporate income tax rate combines both the traditional corporate income tax of 7.0 percent and a second tax of 2.5 percent on the same base, known as the “personal property replacement tax” for the repealed tax for which it was intended as a revenue replacement.
The state’s high income tax rates lead to an above-average corporate income tax burden for all mature firm types. These firms also experience a high combined state and local sales tax rate, and the corporate headquarters, R&D operation, and technology center see higher-than-average property taxes that contribute to their low ranks.
Mature shared services centers see middle-of-the-road effective tax rates despite the state’s favorable benefits-received sourcing rule. Much of the advantage of benefits sourcing is eliminated because the firm is subject to a throwout rule for service receipts attributable to a state where the taxpayer is not taxable.
The state’s throwback rule also works to the detriment of research and development (R&D) facilities, with the mature firm facing a 16.5 percent effective tax rate, which is high for that firm type and ranks 47th nationwide.
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.