Wisconsin Business Taxes Topped $8 Billion in 2011
Property, Not Income, Tax Largest Business Tax
The corporate income tax dominates discussion of business taxes, but it accounted for just 10% of the $8.5 billion Wisconsin businesses paid in taxes in 2011. The property tax was the single largest tax paid by businesses, generating 51% of the total. These are two key findings from “Badger State Business Taxes,” a new report from the Wisconsin Taxpayers Alliance (WISTAX). Celebrating its 80th year, WISTAX is a nonprofit, nonpartisan organization dedicated to policy research and citizen education.
In 2011, the four largest business taxes were the property ($4.3 billion), sales ($1.4 billion), unemployment ($1 billion), and corporate income taxes ($852.9 million). Other major business taxes include those on hospitals, utilities, and insurance companies.
The four largest business taxes combined increased 244.7% from 1982 through 2011. Business property tax collections rose 226.6%, sales 327.5%, unemployment 349.7%, and the corporate income tax 164.1%. Total business taxes increased in every year but two during that time.
However, business taxes as a share of total taxes has been more variable. Business taxes accounted for 38.2% of all state and local taxes in 1982, rose to 41.7% in 1987, fell to 28.8% in 2000, and increased to 32.7% by 2011. The share change can be attributed primarily to changes in property taxes on agricultural land, changes in business tax filing, and rapid growth, at times, in the individual income tax.
The state constitution requires all taxable property to be taxed at the same rate. However, a 1997 law change allowed agricultural land to be assessed on use, rather than market, value. The result was a $358 million decline in business property taxes. Moreover, agricultural land values have grown much more slowly since, shifting the tax burden to other businesses and to individuals.
A dramatic change in how businesses file income taxes has also affected corporate income tax collections. A growing percentage of business income is taxed through the individual income tax, rather than the corporate income tax. Nationally, the number of “pass-through” businesses—those that pass business income to the individual where it is taxed—increased nearly 200%, from 10.9 million in 1980 to 31.9 million in 2008. These include sole proprietorships, partnerships, LLCs, and subchapter S corporations. The number of traditional C corporations—those paying the corporate income tax—declined from 2.2 million to 1.8 million. While business taxes continued to be collected, they are not reported as such; rather, they are reported as individual income taxes. Thus, the $8.5 billion figure understates total business taxes.
A third factor affecting the business share of taxes was the rapid rise in individual income tax collections during the late 1980s and the 1990s. When one tax grows much faster than others, as was true during this period, it means the shares claimed by all other taxes (e.g., corporate income and sales taxes) fall. While the growing amount of business income taxed at the individual level was part of the reason for the increases, a lack of indexing—or adjusting brackets for inflation—also played a major role. With individual income taxes rising rapidly until the return of indexing in 1999, the business share of total taxes fell.
The WISTAX study also put business taxes here in national context. In 2011, Wisconsin business taxes claimed 4.79% of private-sector GDP, placing it 31st among the 50 states. Of the major business taxes, Wisconsin ranked highest on unemployment taxes (12th). The state’s corporate income tax ranked 18th highest. Wisconsin was also among the top half of states in business property taxes.
A free copy of The Wisconsin Taxpayer, “Badger State Business Taxes” is available by visiting www.wistax.org; emailing email@example.com; calling 608.241.9789; or writing WISTAX at 401 North Lawn Ave., Madison, WI 53704-5033.