How much are Virginia Businesses Paying in Taxes?

By Terry Barrett, CPA, Tax Senior Manager | State and Local Tax Team

Annual Study Reveals State and Local Business Tax Increases

The Council on State Taxation (COST), Ernst &Young LLP, and the State Tax Research Institute (STRI) recently released their annual study on state and local taxes paid by businesses in Fiscal Year 2018 (July 1, 2017, through June 30, 2018, in most states). Overall, they found that businesses paid more than 781 billion dollars in state and local taxes in FY18 which was an increase of 6.1 percent from FY17 payments.  This increase was more than the combined increases over the prior four fiscal years. This business tax revenue comprised approximately 43.5 percent of all state and local tax revenue collected.

Taxes included in the study were corporate income and franchise taxes, gross receipts taxes, sales and excise taxes paid by business on their purchases/capital expenditures, business license taxes, unemployment insurance taxes, individual income taxes paid by the owners of pass-through entities, and other state/local taxes generally imposed upon businesses in all 50 states and the District of Columbia.  The study included revenues and comparisons by tax type as well as comparisons of the tax revenues to various measures and levels of economic activity.

How does Virginia Compare in State and Local Business Tax?

Property taxes, including real and tangible personal property taxes, were the largest category of state and local taxes paid by businesses in FY18. These accounted for 38 percent of all state and local tax revenues and 76.2 percent of all local tax revenues. Total property taxes paid by businesses were 297.1 billion dollars. Business property tax revenue increased by 2 percent in FY18, a gain of 14.6 billion dollars over FY17.

• In Virginia, property taxes paid by businesses, notably all at the local level, comprised 7.8 billion dollars or almost 47 percent of all Virginia state and local tax revenues in FY18. Property taxes were the largest category of tax paid by businesses in the Commonwealth.

Sales/use taxes paid on business inputs and capital expenditures were the second largest source of state and local tax revenues paid by businesses, accounting for 166.9 billion dollars or 21.4 percent of state and local taxes paid. Sales/use taxes were the largest state tax paid (31.6 percent of all state taxes) paid by businesses. Sales/use tax paid increased by 5.6 percent in FY18.

• In Virginia, sales tax revenues comprised 13.17 percent of all state and local taxes paid by businesses. The smaller percentage of Virginia tax revenues generated by sales/use tax is due, in part, to Virginia’s lower tax rate and smaller tax base in comparison to most states.

Corporate income tax[i] revenues were 66.2 billion dollars or 8.5 percent of all state and local business taxes in FY18. This was an increase of 6.8 percent over FY17 revenues. The increase was largely due to state conformity to federal tax reform. It is noteworthy the increase reflects only one-half of a year of revenues and the increase is expected to be much more substantial for FY19.

• In Virginia, corporate income tax revenue comprised 5.4 percent of all state and local taxes paid by businesses. In Virginia, as with the U.S. generally, corporate income tax revenues are a small percentage of the state and local tax revenue.

Individual income taxes paid by the owners of pass-through businesses[ii] such as partnerships, s corporations, limited liability companies, and sole proprietorships, were approximately 49.7 billion dollars or 6.4 percent of total state and local business taxes in FY18. This was an increase of 15.7 percent over FY17.  Some of the increase was the result of deconformity by most states to the federal qualified business income tax deduction (Section 199A). Further, both California and New York accounted for a large part of the increase over FY17 revenues.

• In Virginia, individual income tax on business income of pass-through entity owners was 1.1 billion dollars or approximately 6.6 percent of total business taxes.

License and other taxes, including local gross receipts taxes, documentary and stock transfer taxes, etc., comprised 65.7 billion dollars or about 8.4 percent of business tax revenues in FY18.

• In Virginia, license and other such taxes comprised 10.2 percent of the total business state and local tax revenues. This is largely due to the business license taxes (BPOL) assessed at the local level.

Summary

As noted above, overall the study found that the state and local business tax growth was 6.1 percent in FY18 over FY17.  In Virginia, the increase was well below that at only 3.7 percent.

[i] This includes certain state level gross receipts taxes that are levied by states in lieu of corporate income taxes, such as the Washington B&O tax, Ohio Commercial Activity Tax, the Texas Franchise/Margin tax, the New Hampshire Business Tax, and the Nevada Commerce Tax.

[ii] Ibid.

Source: Total state and local business taxes

Additional State and Local Tax Resources

• Top 10 State and Local Tax Considerations
• Virginia Residency and Income Tax Requirements
• Sales Tax Requirements: One Year After Landmark Wayfair Decision