Top Stories Milwaukee

A new study ranks Wisconsin’s tax climate as the fourth best in the country for making a major new business investment. The report runs counter to past studies, which have depicted the state as a “tax hell.”

The study was released last week by the Council on State Taxation. According to its website, COST is “a nonprofit trade association consisting of nearly 600 multistate corporations engaged in interstate and international business.” The group’s objective, it says, “is to preserve and promote equitable and nondiscriminatory state and local taxation of multijurisdictional business entities.”

To that end, COST commissioned the study from Ernst & Young, one of the world’s largest companies providing professional services, including tax services, to look into which states have the best tax climates for new investment.

“As states recover from the recent recession, legislators and policy-makers are focusing attention on state policies designed to retain and expand employment and attract new investment,” says the report. “Legislators want to know how a state’s current business tax system compares to other states considered to be competitors for jobs and investment.”

Such is the case in Wisconsin, where Gov. Walker convened a special session of the state Legislature earlier this year focused on job creation and economic development. Key legislation passed during the session created new tax credits for job creation. Businesses, depending on their size, will receive tax deductions for new jobs. Tax savings, the nonpartisan Legislative Fiscal Bureau estimated, will range from $92 to $316 per each employee added.

But the COST study disregards tax credits. It looks solely at corporate, sales and property taxes affecting businesses. It also factors in how states calculate “tax bases,” the portion of income, sales or property value deemed taxable. “The rankings show that differences in how states define tax bases are, for many states, more important in determining tax competitiveness than the statutory tax rates,” the report says.

The study focuses on how the location of major new business and manufacturing facilities – the kinds public officials are eager to attract – are affected by state and local taxes. Estimates of those effects, across a 30-year period, were calculated for five models: a corporate headquarters, a research and development facility, an office and call center facility, a durable goods (i.e. electronics) manufacturing facility and a non-durable goods (i.e. paper) manufacturing facility.

The models were used to calculate an average “effective tax rate” for new businesses in each state. Two versions were calculated; one was weighted based on new jobs created recently in states, and another was weighted based on recent capital investments. The weights determined which of the five models figured more prominently in calculating an overall effective tax rate.

Both versions produced similar rankings. Wisconsin placed fourth in both. Using the jobs method, the study found the state had an effective tax rate of 5.7 percent (compared to a national average of 9.1 percent). Using the capital investment method, the state had a rate of 4.5 percent (the national average was 7.9 percent).

The top three states in the country for new investments were, in descending order, Maine, Oregon and Ohio. The worst were Kansas, Rhode Island and New Mexico.

The report says the estimates include any state and local tax changes scheduled to take effect through 2014. In factoring in local property taxes, the study took statewide averages.

The study, however, didn’t take into account combined reporting, a new method for calculating corporate income tax paid by multi-state corporations. This method, now used in slightly more than half of states, was passed by Democrats in the Wisconsin state Legislature in 2009 over the objections of Republicans.

Combined reporting requires companies to pay taxes based the state’s share of the corporation’s nationwide worth. It’s intended to prevent companies from avoiding state taxes by shifting profits to subsidiaries in states with little or no corporate income tax.

The study did take into effect, however, the “single sales” rules for calculating corporate income taxes used in Wisconsin. Passed with bi-partisan support in 2003, these rules generally reduced the taxes, especially for companies with large holdings in this state.

The findings of the COST study differ from those of other studies gauging Wisconsin’s tax climate. This state tends to rank relatively high in taxes paid by individuals. Last year’s rankings by the Wisconsin Taxpayers Alliance of the state and local tax burden as a percentage of personal income placed Wisconsin at 13th.

And a national ranking by the Tax Foundation, a Washington D.C. tax research group, ranked Wisconsin 40th in “business tax climate.” Besides business taxes, this study also factored in individual incomes taxes, something not included in the COST report.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.