NEW YORK SPOTLIGHT
The Tax Question:
Who's Right?
Who's Right?
New York officials like McMahon contend that if tax climate-ranking publishers took the EZ program into account, New York would not receive consistently low marks in business climate ratings.
One study that apparently did not consider the EZ program was the recent Forbes report that ranked New York last among the 50 states in overall business climate. Using data from the Pacific Research Institute for Public Policy in San Francisco, the magazine concluded that Kansas had the best business climate in the nation and New York had the worst.
But when it comes to evaluating tax and regulatory policy differences among the 50 states, who's right? Robert Tannenwald, assistant vice president and economist for the Federal Reserve Bank in Boston, says you can't always tell.
"It's actually quite easy to trash a state's business tax climate," he said. "All you have to do is quote only those indicators that make a state's tax burden look high, focus only on the specific tax rates that are high, and cite surveys revealing negative corporate attitudes toward a state's tax climate."
Tannenwald contends that a more accurate tax climate ranking would factor total state and local tax liability as a percentage of pre-tax corporate income -- demonstrating a correlation between tax rates and corporate profitability.
The Wisconsin Department of Revenue did just that in 2000 to show the relative tax rates for a representative hypothetical plastics manufacturer doing business in 20 of the largest U.S. states.
The hypothetical company would face the highest state and local tax liability as a percentage of pre-tax corporate income in Florida (29.2 percent) and the lowest tax rate in Massachusetts (6.7 percent). In New York, the tax would amount to only 10.2 percent of pre-tax income -- making New York the sixth best bargain of the bunch.
Perhaps that explains why New York, which consistently ranks low in its perceived business tax climate, scores highly in corporate project performance. In the 2003 Site Selection Business Climate Ranking, corporate real estate executives ranked New York as only the 19th best state for overall business climate. However, New York was second only to Michigan in actual number of corporate real estate projects over the last three years.
Furthermore, in the 2003 Site Selection Competitiveness Awards, a ranking based on economic performance in 10 objective categories, New York placed eighth, well ahead of many states that typically receive higher "business climate" scores.
Tannenwald says that states such as New York can counter the misperceptions of their business tax climate by being more aggressive in exposing the fallacies behind the misleading indicators and by showing how all state and local taxes affect the bottom line.
"Talk about what people and businesses get for their tax dollars," he says. "Be knowledgeable about and sensitive to specific tax concerns, and you will go a long way toward persuading an otherwise skeptical corporate decision-maker."
One study that apparently did not consider the EZ program was the recent Forbes report that ranked New York last among the 50 states in overall business climate. Using data from the Pacific Research Institute for Public Policy in San Francisco, the magazine concluded that Kansas had the best business climate in the nation and New York had the worst.
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| This facility in Saratoga County will be home to Daystar Technologies’ 18,000-sq.-ft. (1,672-sq.- m.) HQ, manufacturing and R&D complex. Among the attractions for Daystar CEO John Tuttle were the “sophisticated academic and technology resources available in Albany’s Tech Valley.” |
"It's actually quite easy to trash a state's business tax climate," he said. "All you have to do is quote only those indicators that make a state's tax burden look high, focus only on the specific tax rates that are high, and cite surveys revealing negative corporate attitudes toward a state's tax climate."
Tannenwald contends that a more accurate tax climate ranking would factor total state and local tax liability as a percentage of pre-tax corporate income -- demonstrating a correlation between tax rates and corporate profitability.
The Wisconsin Department of Revenue did just that in 2000 to show the relative tax rates for a representative hypothetical plastics manufacturer doing business in 20 of the largest U.S. states.
The hypothetical company would face the highest state and local tax liability as a percentage of pre-tax corporate income in Florida (29.2 percent) and the lowest tax rate in Massachusetts (6.7 percent). In New York, the tax would amount to only 10.2 percent of pre-tax income -- making New York the sixth best bargain of the bunch.
Perhaps that explains why New York, which consistently ranks low in its perceived business tax climate, scores highly in corporate project performance. In the 2003 Site Selection Business Climate Ranking, corporate real estate executives ranked New York as only the 19th best state for overall business climate. However, New York was second only to Michigan in actual number of corporate real estate projects over the last three years.
Furthermore, in the 2003 Site Selection Competitiveness Awards, a ranking based on economic performance in 10 objective categories, New York placed eighth, well ahead of many states that typically receive higher "business climate" scores.
Tannenwald says that states such as New York can counter the misperceptions of their business tax climate by being more aggressive in exposing the fallacies behind the misleading indicators and by showing how all state and local taxes affect the bottom line.
"Talk about what people and businesses get for their tax dollars," he says. "Be knowledgeable about and sensitive to specific tax concerns, and you will go a long way toward persuading an otherwise skeptical corporate decision-maker."
