Incentives Watch: Tax Foundation State Comparison Study Plays Down Effectiveness of Tax Incentives

A new Tax Foundation study, called Location Matters: A Comparative Analysis of State Tax Costs on Business, analyzed the costs of doing business in each of the 50 states and examined the economic impact of five types of tax incentives, including new job credits, investment credits, research and development credits, payroll withholding tax rebates, and property tax abatements. 

“[T]ax preferences and incentive deals can distort the playing field based on how long a business has been operating, whether it’s a manufacturing or retail operation or whether it’s moved from another state to set up shop, noted Scott Hodge, the president of the Tax Foundation.  

Although tax incentives are meant to attract business to a particular state, “they can be a windfall to a firm that would have expanded anyway, can leave out existing firms, and can complicate the tax system,” Hodge said.

But tax incentives helped Ohio rank among the top five low tax cost list for both more established businesses, as well as new firms.  The combined effects of property tax abatements, withholding tax credits, and a low rate gross receipts tax, contributed to Ohio’s high ranking.

For so-called mature businesses (which are those that have been established for over 10 years), the top five states with the lowest tax costs are Wyoming, South Dakota, Georgia, Nevada, and Ohio. The highest tax costs for mature firms are New Jersey, New York, Indiana, Massachusetts, and Illinois.

For new businesses, the states with the lowest tax costs are Nebraska, Louisiana, Ohio, Wisconsin, and Oklahoma. States with the highest tax costs for new firms are Massachusetts, Rhode Island, California, Maryland, and Colorado.

For more information about the Tax Foundation study, check out this articleby Bloomberg BNA State Tax Law Editor Priya Nair, published in last week’s issue of the Weekly State Tax Report


In other developments . . .

For a look at how Wisconsin’s manufacturing and agricultural tax credit will help out farmers and factories, check out this commentary by Kevin McGee in the

The controversy surrounding the enactment of a bill in Virginia giving a tax exemption to the Orion Air Group is examined in this PilotOnline.comarticle

A newly released report by the Legislative Auditor's Office in Louisiana shows that corporations and individuals received $5 billion in tax credits and incentives from 2005 to 2010.  However, the report also noted that it is difficult to determine what Louisiana received in return for all of those tax credits and incentives.  For more information about the report, check out this article in The Advocate

Compiled By: Kathleen Caggiano

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