Income is small share of business taxes

Emerging from a long debate over the second major revision of the state's business income tax in a decade, Michigan residents, and maybe some policy-makers, may be surprised by the results of the Council on State Taxation's annual report on business taxes.

Gov. Rick Snyder and allies in the Legislature and business community argued consistently through the spring of 2011 that the elimination of the Michigan Business Tax and its replacement with a corporate income tax was critical to reviving the state economy.

However, the COST report shows the corporate income tax is a minor player, at least when it comes to actual tax revenue.

In 2010, business taxes nationally totaled $619 billion. The largest share of that amount came from taxes on business property -- $249.5 billion. Corporate income taxes, including Michigan's infamous MBT -- totaled only $44.1 billion.

So, corporate income taxes constitute less than 10 percent of the overall tax burden on U.S. business. Property taxes are about 40 percent of the total bite.

In Michigan, the role of property taxes is even larger. In FY10, Michigan collected an estimated $15.4 billion in taxes on business. About $7.6 billion --  essentially half -- came from property levies. Only $1.9 billion of the total -- 12 percent -- came from the now-discarded MBT.

The report also showed that dropped slightly between 2009 and 2010 -- $2 billion, or 0.3 percent.

Jeff Guilfoyle of the nonpartisan Citizens Research Council cautions, however, that the raw numbers may mislead about the saliency of different taxes.

For example, in Michigan, property taxes paid on rental houses would count as business property taxes. Also, taxes levied on the land used in business may be taxed, but such taxation does not have a "distortionary" effect on the business economy, he explained.

In the world of tax policy and economic recruitment, Guilfoyle said the issues are about tax structures that are "distortionary," not necessarily those that are the largest. The MBT, he added, was seen as "egregious" and having an effect on the state's competitive position.

While property taxes are seen as less of a distortion on the market, there's one aspect of them that does stand out, he said: personal property taxes.

It just so happens that changes to the personal property tax system are at the top of the agenda for the Snyder administration when the Legislature returns from its summer hiatus.