(The Center Square) – A new report found Illinois is among the worst states in the country when it comes to the tax burdens faced by businesses.
The recent “Location Matters” study, published by the Tax Foundation, calculated and analyzed the tax costs of eight model firms in every state in the country. Researchers looked at a corporate headquarters, a research and development facility, a technology center, a data center, a shared services center, a distribution center, a capital-intensive manufacturer, and a labor-intensive manufacturer.
“Corporations do face much more than just a high corporate income tax,” said Katherine Loughead, senior policy analyst at the Tax Foundation. “Oftentimes people think of the corporate income tax as the main tax, but there's so much more to what the tax burdens that businesses face.”
Each model firm was examined twice, first as a new operation eligible for tax incentives and then as a mature operation down the road.
“Illinois does offer a number of incentives,” Loughead said. “That does reduce the burden for newer firms, but once they've been in the state for, say, 10 years, a lot of those tax incentives run out and businesses are now left with one of the highest tax burdens in the nation.”
When looking at the results of the report, Illinois ranked in the bottom third of states for six out of the eight mature firm types, and in the bottom ten for four of the firms. New firms faced “middle-of-the-road” tax burdens.
“The technology center that had been in the state for 10 years or more faced the worst total effect of tax rates in Chicago compared to if it were in any of the major cities in any of the other states,” Loughead said. “That's problematic and that makes Illinois way less desirable for a technology center.”
The state also had among the ten-highest tax burdens for a mature corporate headquarters, a research and development company, and a labor-intensive manufacturer.
“The study really highlights how tax basis matter,” Loughead said. “It's not just the rates that matter, but a lot of the tax burden is attributable to whether a business has a lot of capital and how the state treats various assets … does it property tax apply to equipment and inventory?”
The report accounts for all business taxes, including corporate income taxes, property taxes, sales taxes, unemployment insurance taxes, capital stock taxes, inventory taxes, and gross receipts taxes.
Loughead says among the key takeaways from the data is that tax structure and tax bases matter as much as, or even more than, tax rates.
The full report is available at the Tax Foundation’s website.