Defying many commonly held misconceptions, Wisconsin has the fourth-lowest state and local tax burden for business expansion in the nation, according to a new study.
The study, “Competitiveness of State and Local Business Taxes on New Investment,” was compiled by the Quantitative Economics and Statistics Practice (QUEST) of Ernst & Young LLP in conjunction with the Council On State Taxation (COST). QUEST is a group of economists, statisticians, and tax policy researchers within Ernst & Young LLP’s National Tax practice, located in Washington, D.C.
The report ranked the states according to the local tax burdens on new investments by businesses.
According to the report, the top five states with the lowest effective tax rate (ETR) on new investment are: (1) Maine (3.0 percent); (2) Oregon (3.8 percent); (3) Ohio (4.4 percent); (4) Wisconsin (4.5 percent); and (5) Illinois (4.6 percent).
The states with the highest ETRs on new investment are: (1) New Mexico (16.6 percent); (2) District of Columbia (16.6 percent); (3) Rhode Island (11.5 percent); (4) Kansas (11.2 percent); and (5) Louisiana (11.1 percent).
Wisconsin’s impressive ranking in the fresh report is welcome news for Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce (MMAC).
“This ranking will turn a few heads, and it should. It tells us if we keep our spending in line we can build on an increasingly competitive tax environment to grow capital investment and jobs,” Sheehy told BizTimes. “It will help our economic development effort. Being in the top five is something to shout about. This is the kind of information that resonates with decision makers. And it points out our path to resolving budget issues in this state, being attractive to new investments and job growth results in greater revenue for governmental services.”
Jim Paetsch, vice president of the Milwaukee 7 regional development coalition, said, “Wisconsin has a strong value proposition. The M-7 talks frequently with executives who are making decisions on where global corporate investments are going to be placed. They like our assets and see the state business climate as strong and trending upward. Companies look at a number of factors when determining where to invest, and taxes are certainly on the list. The findings of the Ernst & Young study show that we have a compelling story to tell on this front.”
COST is a nonprofit trade association based in Washington, D.C. COST was formed in 1969 as an advisory committee to the Council of State Chambers of Commerce and today has an independent membership of nearly 600 major corporations engaged in interstate and international business. COST’s objective is to preserve and promote the equitable and nondiscriminatory state and local taxation of multijurisdictional business entities.
“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. State and local business tax policy is an important element of this policy discussion, and legislators want to know how a state’s current business tax system compares to other states considered to be competitors for jobs and investment,” the report’s executive summary stated. “This study provides a state-by-state comparison of the tax liabilities that new investments in selected industries or types of economic activities would incur in each state, taking into consideration state and local statutory tax provisions and the financial and economic characteristics of the new investments. The analysis focuses on capital investments in industries that have location choices, such as factories or headquarters, rather than those that are tied to a specific geography, such as retailers or hotels. The estimated tax burdens on selected investments are combined to provide an overall measure of the business tax competitiveness of each state.”
Andrew Phillips, senior manager at Quest, provided insight about Wisconsin’s ranking in the study.
“The ranking results from several factors. While Wisconsin has a higher-than-average corporate income tax rate, the corporate tax system allocates income to Wisconsin using a favorable method. The amount of income from a new investment in Wisconsin that is subject to Wisconsin corporate income tax is equal to the company’s share of nationwide sales in Wisconsin,” Phillips said. “For most multistate companies selling nationwide, the share of sales in-state will be relatively small and Wisconsin’s income apportionment formula will be very favorable. Wisconsin also has a below-average sales tax rate – a 5.3 percent combined average state and local rate compared to 6.2 percent nationwide – and no corporate net worth tax. In our study, Wisconsin’s area of non-competitiveness is its property tax, which includes personal property in the tax base and is levied at an above-average tax rate.”
To gain access to the full report, click here.
The tax burden report wasn’t the only good news about Wisconsin’s economic climate this week.
The Wisconsin Department of Workforce Development said metropolitan Milwaukee gained 4,600 jobs during March, resulting in a net gain of 16,700 jobs during the first three months of 2011.
Among the largest metro areas in the state, metro Milwaukee experienced the largest one-month gain in jobs numbers, followed by Eau Claire’s gain of 800 jobs, on a seasonally adjusted basis. Appleton, Janesville, Madison and Oshkosh-Neenah also added jobs. Fond du Lac, Green Bay and Sheboygan held the line on job totals, while metro La Crosse, Racine and Wausau experienced decreases over the month.
“Under Governor Walker’s leadership, businesses are clearly gaining confidence in the economy and participating in Wisconsin’s annual hiring cycle,” Workforce Development Secretary Manny Perez said. “We continue to encourage jobseekers to pursue the employment opportunities available in metro Milwaukee and in metro areas across the state, including over 28,000 jobs currently posted on www.JobCenterofWisconsin.com.”
The state’s seasonally unemployment rate stands at 7.4 percent, still well below the national rate of 8.8 percent.
