The Council on State Taxation today released its new report on state and local business taxes. We watch for the annual updates of this comprehensive report, conducted for COST by Ernst and Young. While there’s a lot of good information in the report, we turn to Table 4, which reports state and local business taxes as a share of private sector gross state product.

This year Washington’s business tax burden as a share of private sector GSP is 5.5 percent, which ties us for 14th, along with Kansas. COST calls this the Total Effective Business Tax Rate.

The TEBTR is measured as the ratio of state and local business taxes to private-sector gross state product (GSP), the total value of a state’s annual production of goods and services by the private sector. The average TEBTR across all states is 5.0%; TEBTRs range from 3.5% in Oregon to 15.4% in Alaska.

COST points out:

While the business TEBTRs provide a starting point for comparing burdens across states, they do not provide sufficient information to evaluate a state’s competitiveness. ..States with the highest TEBTRs tend to be the states with significant severance taxes on natural resources…More generally, a state with an average overall TEBTR may impose relatively high taxes on capital-intensive manufacturers, while imposing relatively low taxes on labor-intensive service industries. As a result, a state with such a tax structure and composition may create disincentives for locating new plant and equipment in the state.

 It is also important to note that the TEBTR is a measure of the average tax burden on existing businesses in a state rather than a measure of the marginal tax that would be borne by a company investing in a new facility.

As we’ve noted before (for example, here and here), there are a number of ways to evaluate a state’s business tax climate. The annual COST report is a good contribution to such efforts.