One thing that has repeatedly been cited by small business owners as a major issue they face in their day-to-day operations is that they have to deal with fairly high taxes. However, those charged in each state can vary widely, and some impose relatively little tax burden on companies operating within their borders versus others.
When taking into account both small and large businesses, companies paid about $623 billion in state and local taxes alone in 2011, with the biggest burdens in this regard stemming from property taxes, as well as those for general sales and unemployment insurance, according to the latest State Business Tax Buren Rankings from the Anderson Economic Group. Out of all 50 states as well as the District of Columbia, the ways in which taxes are levied against businesses of all sizes can vary significantly; some charge relatively little in property taxes while increasing costs for UI taxes, and so forth.
Nationally, property taxes generally brought the biggest costs for businesses, making up 37 percent of all money paid into the tax system nationwide, the report said. Another 18.6 percent came from general sales tax, and unemployment insurance taxes took another 12.5 percent of businesses' tax dollars nationwide. These facts may be difficult to square with the common perception that corporate income taxes actually creates the largest burden on companies, particularly smaller ones, as these only took about 7.5 percent of the pie, making it the fifth-largest portion, falling also behind license fees.
When it comes to individual states where businesses' tax burdens are smallest, Delaware ranks first, with these costs coming to just 5.1 percent of operating margins, the report said. Oregon and Utah, at 5.7 and 6.2 percent, respectively, rounded out the top three. In fact, all states in the top 10 (also including Louisiana, Georgia, South Dakota, Maryland, North Carolina, Oklahoma and Idaho), were all below the national average of 10.2 percent.
Meanwhile, Alaskan companies pay the largest share of their operating margins into taxes, with the total there coming to 25.2 percent, the report said. This was well ahead of the second-largest slice, paid by businesses in North Dakota, of 16.8 percent. Wyoming (15.7 percent) was the only other state in which enterprises paid more than 15 percent of their margins into taxes.
What makes up individual states' tax burdens?
Interestingly, when it comes to the reasons Delaware, for example, has the lowest taxation rates for businesses nationwide, it's because the state's levies rank in the bottom 10 when it comes to taxes for property, fuel, excise, unemployment insurance, and sales, the report said. However, it also has the highest license fee when viewed as a portion of operating surplus before taxes are considered.
Meanwhile, Alaska charges significant amounts for severance taxes, but these are technically only charged directly to oil and natural gas companies, the report said. That means that when it comes to several other types of levies, Alaskan businesses actually face extremely low burdens if they do not operate within that industry.
As a consequence, it may be important for small business owners concerned about these added costs to review the ways in which they will be able to find the lowest tax rates for their industries somewhere in the country. Moreover, those looking to reduce the amount they're paying out over the course of the year for everything may also want to look into more affordable small business insurance policies, including those for general liability insurance, which can become significantly more expensive as independent companies increase hiring efforts.
