Property Tax Post: Property Taxes Account for Lion’s Share of Business Tax Revenues by Wide Margin

Taxes on real, personal, and utility property owned by businesses accounted for the largest share of state and local business tax receipts by a wide margin, according to an August 2014 study released by the Council on State Taxation (COST) and Ernst & Young (EY).

The study provides estimates of the state and local taxes paid by businesses from July 2012 to June 2013, including business property, sales and excise, corporate income, and business and corporate license taxes. 

In FY 2013 businesses paid just over $242 billion in property taxes, up from the approximately $233 billion paid in 2012. This $242 billion in business property taxes made up over 36 percent of the $670 billion in total state and local business taxes, for an increase of 3.7 percent from the prior year. 

Local governments, however, rely on business property taxes to a much greater extent than state governments. Taxes on business property make up over 76 percent of local business tax revenue compared to just over 2 percent of state budgets. As a result, total business taxes account for a larger share of local taxes, at 51.4 percent, than state taxes, at 40.6 percent.

At the local level the amount of business property tax collected rose by 3.7 percent over last year, and increased by 1.6 percent at the state level. The 3.7 percent increase at the local level, or $8.4 billion in dollar terms, was by far the largest year-to-year increase since 2009, having remained relatively flat from 2009 through 2012. 

According to COST, FY 2013 was the first year since 2009 that the growth rate for business property taxes increased by more than 0.9 percent, which could possibly reflect increasing property values as the economy continues to improve.

The study found that this significant increase in business property taxes was mainly driven by large gains in California, New York and Texas, with Texas having the largest dollar increase at $1.6 billion over the FY 2012 level. North Dakota saw the highest rate of business property tax growth with 22.4 percent.

Since the 2008 recession, this annual study has also looked at state business tax collection as compared with the pre-recession peaks. Merely 55 percent of states plus the District of Columbia have collected property taxes that surpassed their peak collection over the last decade. Only corporate income tax collection has seen a slower recovery, with only 40 percent of states exceeding their pre-recessionary peaks.

Looking to the present, COST and EY found that overall property tax collections continued to significantly increase 3.5 percent through the first three quarters of 2014.

Given the above-average increases in property taxes in FY 2013 and the first three quarters of 2014, it is no surprise that many states, such as Michigan, Indiana, North Dakota and Pennsylvania, have enacted or considered enacting major property tax cuts and reforms this year.

Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: What are the main drivers of the unusual increase in property tax collection over the past two years? Is it likely to continue in the years to come? Have most states and localities found the appropriate balance between business and personal tax revenue?

By: George Lynch

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