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Wednesday, December 30, 2009

SD Businesses Pay Higher Taxes Per GSP Than Minn. Competition

The Council on State Taxation (COST) has released its seventh annual report on state and local business taxes. The data, gathered by Ernst & Young, shows South Dakota isn't the business tax haven that various ideologues would have you believe. Among the findings (I'm working from Table 7, page 15):
  • South Dakota's state and local business taxes take 5.2% of our gross state product (i.e., the total economic activity generated by our businesses). That ties us for 18th highest with Louisiana and Florida.
  • Nationally, state and local business taxes take 4.9% of gross state products.
  • The People's Republic of Minnesota only hits its businesses up for 4.3% of its GSP. (Minnesota also does 7.7 times the business South Dakota does, with 6.5 times our population.)
  • The state taking the biggest chunk of GSP in business taxes: freedom-lovin', oil-slurpin' Alaska, 22.3%.
Also worth noting: as previously reported, Pierre slacks off on taxes, leaving South Dakota's local governments to make up the difference. The COST data show we South Dakotans pay 92 cents in local taxes for every buck we pay in state taxes. Nationally, folks pay an (unweighted) average of 57 cents in local taxes for every dollar in state taxes. In other words, South Dakota's state government chickens out and leaves it to locals to raise 48% of the taxes required to provide public goods (cops, schools, etc.) in our state. Forty-five other state governments pick up a greater share of the price tag of civil society—the national average is 65%.

We do make out a little better on the individual side. Non-business taxes (what we workers pay) amount to just 3.5% of GSP, the fifth-lowest rate in the nation. But that individual advantage comes on the backs of businesses. South Dakota lays 61.7% of its state and local tax burden on businesses. That's the fourth-highest business burden in the nation. Nationally, businesses bear 44.1% of the state and local tax burden.

Overall, we pay just 8.7% of our GSP in state and local taxes, tied with Texas for the third-lowest rate in the nation. But when you break the numbers down by who pays and by percentage of the economic pie, you see that South Dakota isn't necessarily the business tax haven it claims to be.

p.s.: Stan! Wyoming's business tax collections equal 9.2% of WY-GSP. I hope that all comes from oil and coal, not independent authors. :-)


  1. Stan Gibilisco12/31/2009 3:05 PM

    Cory, I spent fifteen minutes typing out a comment here and then the vagaries of the Web killed it. I've had it with computers for today.

  2. Okay, deep breath, some snow shoveling (for a break), and I'll try again! Translation: My computer just keeps calling me back, and I just keep going back.

    Listened to some of "Talk of the Nation" today on NPR, and the guest maintained that when two people disagree but both seek the truth, they should ultimately move closer to agreement.

    Gradually, Cory, I may move closer to your position, and you toward mine. Having said that, I suddenly realize that I might not know, after all, exactly what my position is (other than I do not want to see an income tax here, any more than I want to eat kidneys for breakfast tomorrow morning).

    My particular business is strange (in the sense of unusual) because of the way I get my income -- almost all royalties on books. So you can look at it one way and call me an academic or an artist (of sorts), and then you can look at it another way and call me a small business person (of sorts).

    I've lived in more liberal states such as California, Wisconsin, Minnesota, and Hawaii, and more conservative states such as Nevada, Florida, and South Dakota. All of these states have had their weak points and their strong points.

    For example, in Hawaii I got clobbered not only by the state income tax (approaching 10 percent) but by the sales tax (called a general excise tax there). They actually made me pay the general excise tax on all of my income, right off the top, with no deductions. Even with a modest income I shelled out 55 percent to taxes. But all of those taxes varied along with my income: the more I made, the more I paid, and the less I made, the less I paid.

    Here in South Dakota, my income has been substantially greater than it was in Hawaii. So naturally I would tend to favor a low-tax environment. But our property taxes here in Lead are quite high, and they do not vary with income. Prices here are not really lower than they are in other places (except Hawaii). The real killer here in South Dakota, compared with Hawaii, comes with the utility and electric bills.

    In Kona, I paid no gas bill at all, and the electric was almost zero. I had no car there (and did not want or need one), so that expense, too, was nonexistent. Medical insurance and costs were relatively low in Hawaii as well. I was reasonable happy in a 350-square foot efficiency condo! But I did not spend a whole lot of time there when I was not working.

    Here in South Dakota, I have far more in the way of material possessions, but that does not necessarily mean (in and of itself) a higher "happiness coefficient." Actually, the house, truck, and associated hardware require time to maintain, and they also take considerable funds to keep up. So when I boil it all down and finish with the arithmetic, I'm paying out roughly the same percentage of my income towards "unavoidables" here as I did in Hawaii.

    It's all a trade-off ...

    ... but I will maintain that if, tomorrow morning, I awoke to find that I had to send 7.2 percent of my income to Pierre, or even 5 percent, or even 3 percent, and no other expenses went down to compensate, I would seriously consider moving out of this state ...

    ... maybe not to Wyoming, though. Maybe back to Kona!

    But once again, my case is quite nonstandard. Maybe that helps me to see things from all sides, or at least to be willing to try.

    Good luck pushing an income tax in South Dakota! Or rather, I should say, you will need a lot of luck doing it. I suspect we may someday see a corporate income tax such as Texas has, but a personal income tax -- not likely. The oxen would tear out of their harnesses and trample the tax-mongers into oblivion.

  3. Stan, my wife and I were thinking that you do indeed represent a distinct subset of small business. You require no workforce, no storefront, and no local market to support you. You have perhaps the most mobile business imaginable: you could move to almost any place with an Internet connection and a decent library and experience little disruption in your workflow.

    Your business income in SD is much more dependent on what we take from you in taxes than we give in market and services. Other businesses coming here may get the same instant boost in revenue from reduced taxes, but they may face the challenge of finding an educated workforce, developing a sufficiently large and receptive group of local customers, and covering increased transportation costs. Other businesses rely more than you on South Dakota's ability to pay for education and infrastructure.

    A new 7.2% whack out of your income probably would not give you personally the return necessary to convince you to stay when you can hop the border, keep that money in your pocket, and see little change in your living and working conditions. But what if that 7.2% paid for a new public park in Lead, or a better highway out of the Hills to I-90, or more snowplows, or more professors and teachers who would buy your books, or a more robust broadband network that sped up your research (imagine a half-second faster download time per page.... multiply by the number of web pages you look at in one year) and conduct videoconferences with prospective publishers? What public goods do businesses get from the higher taxes they pay? (Hint: see the comparison of Minnesota and South Dakota on page 12 of this PDF report.)

    Trade-offs: interesting comparison of Hawaii and SD expenses! I'll bet you spend more on sweaters and longjohns here, too (not that your underwear is any of my business). But what about your savings on surfboard wax? :-)

  4. "But what about your savings on surfboard wax?"

    -- offset by the additional expense of buying replacements for snow shovels whose handles snap off (as one did yesterday).


  5. [Where's the profit in making shovels if people don't have to come back and buy another one every year? ;-)]


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