Tax Study: Financial Sector Pays Lion's Share

By Handel Destinvil

NU Online News Service, Aug. 12:27 p.m. EDT?Aprofessional services firm study comparing business taxes has foundthat the insurance industry and financial sectors pay a largeramount in state and local business taxes than other businesssectors.[@@]

The research was contained in a report from New York-based Ernst& Young.

Titled " Total State and Local Taxes Paid by the FinancialServices Sector," the report covering fiscal-year 2003 found thatthe financial services sector employs approximately 7 percent ofU.S. full-time employees but pays over 11 percent of state andlocal business taxes.

"We found that in relation to their total composition of theeconomy, the financial sector seems to pay a larger differential intaxes than other fields," said Tom Neubig, Ernst & Young'snational director of quantitative economics and statistics.

This sector's percentage amounted to $45.9 billion in state andlocal taxes in 2003. A major point commented upon in the study wasthat the largest composition of taxes paid by financial servicesfirms was not corporate income taxes.

"A compelling point is that a lot of policy makers focus on thecorporate income tax, but 87 percent of the taxes paid arenon-income taxes," said Mr. Neubig.

He noted that many corporate taxes are ?buried under generaladministrative expenses' such as sales taxes on business inputs anddata, and premium taxes on transactions.

Mr. Neubig added that property taxes actually served as thebiggest source of state and local tax liability, representing 27percent of the sector's total taxes.

The study, which was calculated from 10 different governmentdata sources and tabulated on an industry-by-industry basis, foundtaxation heavy in most states, but also noted variations amongthem, as well.

Mr. Neubig remarked that the states of Illinois, Oregon and NewYork had individual state taxes applied to the financial sector. InOregon, though, companies who paid income taxes could have theirpremium taxes waived.

The full report from Ernst & Young and the office ofQuantitative Economics and Statistics can be found on the Web siteathttp://www.ey.com/global/content.nsf/US/Tax_-_Quantitative_Economics_and_Statistics_-_Overview.