The voices of Urban Institute's researchers and staff
November 8, 2012

How Heavily Taxed is Your City?

November 8, 2012

The U.S. city with the lowest corporate tax burden is Baton Rouge, Louisiana, according to a recent study from KPMG. The most taxed city for corporations? San Francisco.

KPMG took a close look at the tax competitiveness of cities from around the world by comparing their relative corporate income tax, capital tax, sales tax, property tax, miscellaneous local business taxes, and statutory labor costs. Each city was assigned a Total Tax Index: a measure of the total taxes paid by corporations in that city compared with corporate taxes paid in the United States as a whole.

Baton Rouge had a Total Tax Index of 66.5, meaning that taxes were 33.5 percent lower than the United States as a whole. San Francisco had a Total Tax Index of 106.6, indicating that taxes were 6.6 percent higher than the national average. (Spartanburg, South Carolina, was precisely average.)

It would appear that cities vastly prefer below-average corporate tax rates to above-average rates. It is not surprising that cities tend to offer lower corporate tax rates compared with suburban and rural areas, likely in an effort to attract business. Indeed, of the 71 cities analyzed, 83 percent fell below the national average. Also, note the difference between Baton Rouge and San Francisco: cities are willing to lower taxes well below average, but only marginally above average. The gap between the city with the lowest taxes and the median city was almost double the gap between the city with the highest taxes and the median; a greater spread downward than upward.

These findings suggest that cities place great value on economic competitiveness, or perhaps indicate the ability of corporations to lobby for lower taxes. It’s possible the amenities that attract residents to cities are not enough for corporations, leading cities to offer lower tax rates to sweeten the deal. It would be interesting to compare the corporate tax burdens with the individual tax burdens in these cities.

In my last blog post, I found that residents of Tampa, Florida, had the second-lowest ranking of economic confidence in a recent Gallup poll, despite ranking relatively high in economic strength. Now we find out that Tampa’s corporate taxes are 9 percent below average, another reason to speculate why Tampa residents don’t adopt a sunnier outlook.

For those of you wondering about the Washington, DC, area—home city of the Urban Institute—the District had a Total Tax Index of 92.4, or 7.6 percent less than the national average. This places DC as 37 out of the 71 cities surveyed, very middle-of-the-pack. But keep in mind that this ranking is for taxes paid by corporations, not individuals, so to those DC residents who pay above-average taxes, I suggest that you register yourself as a corporation!

For more from this study, see this taxgirl post focusing on the study’s international comparison.

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