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Jared Walczak
Policy Analyst
jmw@taxfoundation.org
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• 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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• Corporate Headquarters
• Research & Development Facility
• Retail Store
• Capital-Intensive Manufacturer
• Labor-Intensive Manufacturer
• Call Center
• Distribution Center
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• 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)
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• 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)
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• 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)
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• 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)
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• 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)
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• 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)
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• 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)
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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.
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org
• 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
Jared Walczak
Policy Analyst
jmw@taxfoundation.org

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Location Matters for New England

  • 1.
  • 3. Jared Walczak Policy Analyst jmw@taxfoundation.org • 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
  • 4. Jared Walczak Policy Analyst jmw@taxfoundation.org • Corporate Headquarters • Research & Development Facility • Retail Store • Capital-Intensive Manufacturer • Labor-Intensive Manufacturer • Call Center • Distribution Center
  • 5. Jared Walczak Policy Analyst jmw@taxfoundation.org • 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)
  • 6. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 7. Jared Walczak Policy Analyst jmw@taxfoundation.org • 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)
  • 8. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 9. Jared Walczak Policy Analyst jmw@taxfoundation.org • 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)
  • 10. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 11. Jared Walczak Policy Analyst jmw@taxfoundation.org • 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)
  • 12. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 13. Jared Walczak Policy Analyst jmw@taxfoundation.org • 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)
  • 14. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 15. Jared Walczak Policy Analyst jmw@taxfoundation.org • 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)
  • 16. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 17. Jared Walczak Policy Analyst jmw@taxfoundation.org • 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)
  • 18. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 19. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 20. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 21. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 22. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 23. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 24. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 25. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 26. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 27. Jared Walczak Policy Analyst jmw@taxfoundation.org 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.
  • 28. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 29. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 30. Jared Walczak Policy Analyst jmw@taxfoundation.org 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
  • 31. Jared Walczak Policy Analyst jmw@taxfoundation.org • 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