How large is Utah's tax bite on business?

• Author: Livsey, Annjanine F.

HOW LARGE IS UTAH'S TAX BITE ON BUSINESS?

Determining where to locate or expand business operations is a decision that can have a far-reaching impact on the profitability of an enterprise. Many factors must be considered before such an important investment decision is made. The productivity, availability, and cost of labor; the educational system; the quality of life; the proximity to relevant markets and transportation systems; the total tax burden; and the availability of necessary supplies and resources are all important factors that should be weighed in a company's decision-making process. Corporations are discovering that state and local taxes make up a significant portion of their cost of doing business.

The overall tax bite for a business consists of many types of taxes. The most common taxes imposed on business include corporate income/franchise taxes, sales and use taxes, and property taxes. The effect of each of these taxes on the profitability of a certain enterprise will depend on the makeup of the specific business. A firm more heavily invested in property will, of course, have a higher property-tax load than one that is less property intensive.

Corporate Income Tax

State corporate income tax is generally based on a company's net income. Most states begin this calculation with federal taxable income. From this starting point, states require certain modifications, both additions and subtractions, to arrive at state taxable income. The specifics of these adjustments are too extensive to detail here, but it is important to note that they alter the effective tax rate from the nominal or statutory rate printed on the tax form. It is the effective (actual) rate that must be used in comparing tax rates among states with different tax-calculation formulas. The example in table 1 demonstrates the difference in income-tax liability among Utah and five neighboring states given the same facts. As you can see, Utah fares quite well when comparing the actual corporate income-tax burden in this particular situation.

Property Taxes

Property taxes can be a very important factor in any business-expansion decision. This is particularly important for businesses with a disproportionate share of taxable property, when both machinery and real estate would be subject to property taxes.

Property taxes are a major revenue producer for cities and municipalities. Virtually all localities collect property taxes on real estate, with most also taxing...