Imagine being a business owner and trying to decide where to move or expand your business. State regulations, infrastructure, workforce, geography and many more factors will all weigh in your decision – including taxes. Corporate taxes, property taxes, sales taxes, unemployment taxes will all have an impact, and each one will impact you differently depending on the type of business you run.
To that end, the Tax Foundation has released a comprehensive and fascinating tool to compare actual tax burdens among states for different types of businesses. Called Location Matters 2021: The State Tax Costs of Doing Business, the tool analyzes the real-world tax burden on eight different types of firms, ranging from corporate headquarters to a labor-intensive manufacturer. It also takes into consideration a new firm versus a mature firm in each category, because new firms tend to be more likely eligible for state economic incentive deals.
The tool not only provides a handy reference for business owners, but also for state legislators as well. Legislators can evaluate the findings to see where their state excels or lags relative to other states when it comes to tax burdens on various types of businesses.
How does North Carolina compare? Here are some key findings:
- Overall, NC stacks up very well nationally, ranking in the top ten (meaning lowest tax burden) in 11 of the 16 categories (8 types of firms, split between new and mature firms for each type)
- NC ranks #1 in the nation for the lowest tax burden on new corporate headquarters. A combination of low business tax rates and generous incentives bolster this ranking. The ranking for mature corporate headquarters comes in at a very strong #3.
- NC also comes in very strong for its tax treatment of technology centers (#3 for new firms, #5 for mature firms), and labor-intensive manufacturers (#8 for new firms, #4 for mature firms). NC also ranks very highly for its treatment of R&D firms and distribution centers
- NC’s worst ranking was in its treatment of data centers (#21 for new and #34 for mature) and new, capital-intensive manufacturers (#29)
North Carolina’s overall strong performance can be largely attributed to the significant improvement in the state’s business climate over the past decade, and property tax rates that continue to be low compared to other states.
There is still room for improvement. “The property tax base’s inclusion of machinery and equipment and the state’s capital stock tax (the franchise tax), which is uncapped and imposed in addition to the corporate income tax,” both contribute to the poor rankings on data centers and capital-intensive manufacturers, according to the report.