Tax Study: Financial Sector Pays Lion's Share

Tax Study: Financial Sector Pays Lion's Share

By Handel Destinvil

NU Online News Service, Aug. 12:27 p.m. EDT?A professional services firm study comparing business taxes has found that the insurance industry and financial sectors pay a larger amount in state and local business taxes than other business sectors.[@@]

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

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

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

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

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

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

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

The study, which was calculated from 10 different government data sources and tabulated on an industry-by-industry basis, found taxation heavy in most states, but also noted variations among them, as well.

Mr. Neubig remarked that the states of Illinois, Oregon and New York had individual state taxes applied to the financial sector. In Oregon, though, companies who paid income taxes could have their premium taxes waived.

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