Businesses paid $554 billion in state and local taxes during the 2006 fiscal year, representing 45 percent of total taxes collected by all state and local governments, according to the annual study prepared by Ernst & Young in conjunction with the Council on State Taxation. The study includes estimates of taxes paid by major industry groups, with the share of taxes paid being determined by a state's overall tax system, the structure of its economy, the types of business taxes levied, as well as business tax features that may provide a competitive advantage or disadvantage in attracting and retaining business employment and investment.

"Although corporate income and payroll taxes have increased sharply since 2002 with the rebound in the economy, property taxes and sales tax on business inputs still account for 60 percent of state and local business taxes," said E&Y’s national director of state and local tax policy economics, Robert Cline, in a statement. "Non-income taxes are important costs of doing business in a state."

Key findings of the study include:

  • State and local business taxes totaled $554 billion in 2006, up 10.2 percent from the prior year.
  • Property taxes were the largest state and local business tax, accounting for $205 billion in 2006, representing 37 percent of total state and local business taxes.
  • Sales taxes on business inputs were the second-largest state and local business taxes, accounting for $125 billion in 2006, or 23 percent of total state and local business taxes. More than 40 percent of those taxes were for business purchases of machinery and supplies.
  • Corporate income tax totaled $52 billion in 2006, representing only 9 percent of total state and local business taxes nationally, even after rising 76 percent since 2002.
  • Over the last four years, state and local taxes on business rose faster than total state and local taxes. As a result, businesses have paid a major portion of the additional state and local taxes collected -- picking up the tab for nearly 50 percent of the entire increase in state and local taxes for the fiscal years spanning from 2002 to 2006.

A copy of the study is available at www.ey.com/us/quest.

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