August 2017

The Tax Burden on Iowa’s Businesses

By Amy K. Frantz

Are Iowa businesses paying their “fair share” of the tax burden in the state? What constitutes a “fair share” for a business will differ depending on one’s views. But first, it would be helpful to know just what share of the tax burden Iowa businesses are paying now. Ernst & Young LLP, in conjunction with the Council On State Taxation (COST) and the State Tax Research Institute (STRI), produces an annual report with detailed state-by-state estimates of the state and local taxes paid by businesses. The most recent report available provides estimates for fiscal year (FY) 2015.

The Ernst and Young report provides data on the taxes businesses pay to state and local governments. There has been much discussion about whether Iowa businesses are paying enough in corporate income taxes or are receiving too many tax breaks. However, to determine whether a business is paying a “fair share” we must consider the overall tax burden on the business, not just one piece. State corporate income taxes make up only 6.8 percent of the taxes paid by businesses in Iowa. Taxes paid to local governments must be included when looking at business tax burden, as property taxes are generally the largest piece of the tax burden paid by a business. In Iowa, property taxes make up 43.5 percent of the tax burden on businesses. The following chart shows the composition of state and local business taxes by type for Iowa’s businesses in FY15.

What is the tax burden on Iowa’s businesses in terms of actual tax revenue?  Iowa businesses paid $6.8 billion in state and local taxes in FY15.  The largest piece of this tax burden is the property tax, with businesses paying $3 billion in property taxes in FY15.  The next largest piece is the sales tax, with $1.7 billion paid by Iowa businesses in FY15.  Iowa businesses paid $500 million in corporate income taxes in FY15.  The remaining $1.6 billion is made up of the other taxes listed in the chart above. 

How does the burden on Iowa’s businesses compare to the overall tax burden?  The business share of state and local taxes combined in Iowa is 45 percent.  The business share of state taxes alone in Iowa is 37.5 percent, and the business share of local taxes in Iowa is 58.1 percent.  In the United States as a whole, the business share of state and local taxes is 44.1 percent, while the business share of state taxes is 39.5 percent and the business share of local taxes is 51.1 percent.  Iowa is close to the United States average on combined and state tax burden, while Iowa’s local tax burden on businesses is higher than the national average. 

When looking at the tax burden paid by Iowa businesses, and trying to determine if businesses are paying a “fair share,” it is unfair to only look at one piece of that tax burden – the corporate income tax.  We must look at the overall tax burden placed on Iowa’s businesses by all taxing entities, state and local. 

Amy K. Frantz is Vice President of Public Interest Institute. 

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.