location matters for new england
TRANSCRIPT
![Page 1: Location Matters for New England](https://reader031.vdocuments.mx/reader031/viewer/2022030302/587cea221a28ab564b8b4fdd/html5/thumbnails/1.jpg)
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Jared WalczakPolicy Analyst
• Allows us to see which taxes are the most significant for different types of businesses
• Sheds light on the cost and significance of incentives
• Helps answer the bottom-line question asked by business executives: “How much will my company pay in taxes?”
• Illustrates how structural aspects of state tax codes can be as important as top line rates
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Jared WalczakPolicy Analyst
• Corporate Headquarters
• Research & Development Facility
• Retail Store
• Capital-Intensive Manufacturer
• Labor-Intensive Manufacturer
• Call Center
• Distribution Center
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Jared WalczakPolicy Analyst
• Connecticut: 19.0% (44th)
• Maine: 15.1% (35th)
• Massachusetts: 15.3% (37th)
• New Hampshire: 12.0% (13th)
• Rhode Island: 16.1% (39th)
• Vermont: 13.1% (21st)
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Jared WalczakPolicy Analyst
CT: 44
ME: 35
MA: 37
NH: 13
RI: 39
VT: 21
• States with best rates for corporate HQs do without one of the major taxes, such as a corporate income or sales tax
• Property and sales tax burdens often substantial, UI burdens relatively modest
• New firms frequently benefit from generous incentives, which can increase costs for mature operations
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Jared WalczakPolicy Analyst
• Connecticut: 14.5% (42nd)
• Maine: 7.8% (9th)
• Massachusetts: 13.8% (37th)
• New Hampshire: 13.5% (34th)
• Rhode Island: 12.7% (30th)
• Vermont: 10.9% (22nd)
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Jared WalczakPolicy Analyst
CT: 42
ME: 9
MA: 37
NH: 34
RI: 30
VT: 22
• Many states offer significant R&D incentives which limit or even eliminate corporate income tax liability
• Benefits sourcing can also be highly advantageous for R&D firms
• With income taxes likely to be low, property taxes typically represent the largest share of an R&D firm’s liability by a substantial margin
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Jared WalczakPolicy Analyst
• Connecticut: 20.9% (44th)
• Maine: 16.6% (34th)
• Massachusetts: 20.9% (44th)
• New Hampshire: 15.8% (27th)
• Rhode Island: 22.1% (47th)
• Vermont: 16.4% (32nd)
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Jared WalczakPolicy Analyst
CT: 44
ME: 34
MA: 44
NH: 27
RI: 47
VT: 32
• Retail is rarely the beneficiary of incentives, so low CIT rates are uniquely important drivers of overall liability
• Property tax burdens tend to far outstrip sales tax liability; note that our study does not include sales taxes imposed on the stores’ own merchandise
• Retail stands out as having lower effective tax rates for mature than new operations
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Jared WalczakPolicy Analyst
• Connecticut: 8.0% (14th)
• Maine: 17.6% (48th)
• Massachusetts: 13.9% (37th)
• New Hampshire: 12.6% (33rd)
• Rhode Island: 14.5% (39th)
• Vermont: 17.2% (47th)
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Jared WalczakPolicy Analyst
CT: 44
ME: 35
MA: 37
NH: 13
RI: 39
VT: 21
• Favorable apportionment factors and the absence of a throwback rule can be more important than statutory top CIT rates
• Property and sales tax burdens often substantial, UI burdens relatively modest
• New firms frequently benefit from generous incentives, which can increase costs for mature operations
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Jared WalczakPolicy Analyst
• Connecticut: 6.7% (12th)
• Maine: 13.4% (44th)
• Massachusetts: 13.5% (45th)
• New Hampshire: 12.1% (38th)
• Rhode Island: 14.9% (50th)
• Vermont: 12.8% (41st)
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Jared WalczakPolicy Analyst
CT: 12
ME: 44
MA: 45
NH: 38
RI: 50
VT: 41
• Property taxes are less important to labor-intensive manufacturing operations than they are to capital-intensive ones, but states limiting property taxes to land and buildings are still the most attractive
• UI taxes can take on somewhat greater significance, but corporate income taxes are generally the driver of tax burdens
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Jared WalczakPolicy Analyst
• Connecticut: 26.9% (46th)
• Maine: 14.8% (9th)
• Massachusetts: 28.0% (48th)
• New Hampshire: 24.2% (40th)
• Rhode Island: 30.7% (49th)
• Vermont: 20.3% (29th)
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Jared WalczakPolicy Analyst
CT: 46
ME: 9
MA: 48
NH: 40
RI: 49
VT: 29
• UI taxes play an outsized role because call centers are low-wage and labor-intensive
• The impact of CITs is heavily dependent upon sourcing rules (benefits vs. IPA)
• Job creation tax credits are often a highly significant consideration for new firms, and sometimes for mature firms as well
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Jared WalczakPolicy Analyst
• Connecticut: 32.3% (36th)
• Maine: 22.9% (18th)
• Massachusetts: 41.1% (47th)
• New Hampshire: 32.4% (37th)
• Rhode Island: 41.8% (48th)
• Vermont: 32.7% (38th)
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Jared WalczakPolicy Analyst
CT: 36
ME: 18
MA: 47
NH: 37
RI: 48
VT: 38
• Property taxes are frequently responsible for more than two-thirds of firms’ overall tax burdens
• States which impose property taxes on equipment, inventory, or both fare particularly poorly
• States often seek to alleviate these burdens through targeted abatements
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Jared WalczakPolicy Analyst
CH: 44
RD: 42
RT: 44
MC: 14
ML: 12
CC: 46
DC: 36
• Including a 20% surtax, Connecticut’s top CIT rate is 9%, while the 6-bracket PIT has a top rate of 6.7%
• The PIT contains a recapture provision
• Connecticut imposes the highest capital stock tax in the country (0.37%, $1M max)
• A budget with a surtax extension, a move to combined reporting, and various miscellaneous new taxes led GE and Aetna to threaten to leave the state
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Jared WalczakPolicy Analyst
CH: 44
RD: 42
RT: 44
MC: 14
ML: 12
CC: 46
DC: 36
• State imposes an above-average tax burden on all non-manufacturing operations, driven by high CIT
• Manufacturing and service firms benefit from single sales factor apportionment
• Connecticut foregoes a throwback rule
• Property tax base includes equipment
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Jared WalczakPolicy Analyst
CH: 35
RD: 9
RT: 34
MC: 48
ML: 44
CC: 9
DC: 18
• Maine’s 8.93% CIT and 7.95% PIT are both significantly above-average nationwide, though the state has a fairly modest 5.5% sales tax with no local option
• This year, the Governor proposed, but the legislature ultimately rejected, broadening the sales tax base to include many services
• Legislature had to override the Governor’s veto to enact a budget
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Jared WalczakPolicy Analyst
CH: 35
RD: 9
RT: 34
MC: 48
ML: 44
CC: 9
DC: 18
• The state’s high CIT is ameliorated for some firms by benefit sourcing and single sales factor apportionment
• But the state does impose a throwout rule
• Applies the property tax to equipment
• New firms benefit from 10% credit on investment up to $3.5M over 7 years
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Jared WalczakPolicy Analyst
CH: 37
RD: 37
RT: 44
MC: 37
ML: 45
CC: 48
DC: 47
• Massachusetts’ modest PIT currently stands at 5.15%, with a trigger kicking in to reduce the rate slightly this year
• The state’s CIT, however, stands at 8.0%, and property taxes are unusually high
• Massachusetts also has high and poorly structured unemployment insurance taxes
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Jared WalczakPolicy Analyst
CH: 37
RD: 37
RT: 44
MC: 37
ML: 45
CC: 48
DC: 47
• The state employs double-weighted sales factor apportionment for all but manufacturers, which receive SSF
• Massachusetts relies on IPA sourcing and imposes a throwback rule
• The state’s already high property tax rates extend to equipment
• Incentives do little to alleviate burdens
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Jared WalczakPolicy Analyst
CH: 13
RD: 34
RT: 27
MC: 33
ML: 38
CC: 40
DC: 37
• Imposes a CIT (business profits tax) at 8.5% and a VAT-style tax (business enterprise tax) at 0.75%
• Foregoes a sales tax and only imposes individual income taxes on interest and dividend income
• For 2016, BPT goes to 8.2%, BET 0.72%
• Triggers could reduce BPT to 7.9% and BEP to 0.675% by the end of 2018
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Jared WalczakPolicy Analyst
CH: 13
RD: 34
RT: 27
MC: 33
ML: 38
CC: 40
DC: 37
• State uses double-weighted sales factor apportionment with a throwback rule
• IPA sourcing rules for service provision
• Relatively high tax burdens for most businesses due to few individual taxes
• Property taxes, though a major source of collections, are limited to real property
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Jared WalczakPolicy Analyst
CH: 39
RD: 30
RT: 47
MC: 39
ML: 50
CC: 49
DC: 48
• Rhode Island’s corporate income tax declined from 9% to 7% in FY 2015(after the book’s snapshot date)
• The state also finished phasing out its antiquated capital stock tax
• Rhode Island’s 7% sales tax is the highest rate among the New England states
• FY 2016 budget includes generous job credits, new development credits, &c.
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Jared WalczakPolicy Analyst
CH: 39
RD: 30
RT: 47
MC: 39
ML: 50
CC: 49
DC: 48
• The state uses three-factor apportionment except for manufacturing firms, which can use optional double-weighted sales factor
• Rhode Island also adopts a throwback rule and sources all service income in-state
• The state imposes some of the highest property taxes in the nation on our model firms, though new firms benefit from generous property tax abatements and investment tax credits
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Jared WalczakPolicy Analyst
CH: 21
RD: 22
RT: 32
MC: 47
ML: 41
CC: 29
DC: 38
• Like most of its peers in New England, Vermont levies high top CIT (8.5%) and PIT (8.95%) rates; both taxes are graduated
• The state’s 6.0% sales tax is augmented by very modest local sales taxes (0.14% avg.)
• Vermont’s PIT brackets, standard deduction, and personal exemption are indexed for inflation
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Jared WalczakPolicy Analyst
CH: 21
RD: 22
RT: 32
MC: 47
ML: 41
CC: 29
DC: 38
• Vermont uses double-weighted sales factor apportionment and IPA sourcing, and imposes a throwback rule
• The property tax base includes land, buildings, and equipment, but the tax on buildings and equipment is wholly abated for a firm’s first five years of operation
• State offers generous incentives to new firms—including, atypically, to retail
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Jared WalczakPolicy Analyst
• Region characterized by high rates, often offset by substantial incentives which pick winners and losers—chance for a state to stand out with neutral tax code
• Equipment often included in the property tax base, substantially increasing tax costs for many firms
• Uncompetitive tax codes leaning heavily on legacy businesses and existing industry mixes; can these states adapt as economy evolves?
• Businesses care about more than just taxes, but tax rates & structures are important to business decisions