Study ranks Arkansas’ corporate tax competitiveness

Editor’s note: Roby Brock, with our content partner Talk Business, wrote this report. He can be reached at [email protected]

A new study prepared by Ernst & Young for the Arkansas State Chamber of Commerce shows that Arkansas’ corporate tax burden on new investments ranks near the top in a broad range of categories compared to seven surrounding states.

An executive summary report was presented to Arkansas lawmakers at an interim Joint Revenue and Tax Committee meeting on Thursday (Nov. 17). A full text of the study will be available next week.

“Our purpose today is to present this report for you as a benchmark, a stake in the ground,” said Randy Zook, President of the Arkansas State Chamber of Commerce. “We recognize that we have opportunities to improve our competitiveness in our quest to recruit new businesses and persuade existing businesses to expand.”

WHAT WAS MEASURED
Arkansas’ state and local tax burdens on new business investments were compared to tax rates in Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas.

The Ernst & Young study measured the “effective tax rate” (ETR) in the 8 states. ETR included before-tax rates and after-tax rates to allow for tax credits, which can affect a state’s business tax competitiveness.

The tax calculations only included corporate income taxes, franchise taxes, sales and use taxes on business purchases, and local property taxes.

The report also considered different types of companies that might make business investments, such as corporate headquarters, research and development, manufacturing, food processing, renewable energy and business support services.

KEY FINDINGS
Key findings from the Ernst & Young study:
• Arkansas ranks second highest in its effective tax rate (11.5%) when looking at all industry sectors compared. Louisiana had the highest rate (12.7%) and Texas had the lowest rate (9.1%). The 8-state average was 10.8%.

• Arkansas ranks third highest in its effective tax rates for manufacturing investments at 11.5%. Louisiana had the highest rate (13.4%) and Kansas had the lowest rate (9.2%).

• Arkansas’ effective corporate tax rate on manufacturing investments is 37% higher than the other states’ average.

• Arkansas’ effective property tax rate for manufacturers is 23% below the average of other states.

• Arkansas had the most diversified base of property, sales and corporate/franchise taxes compared to other states. Texas was the most skewed with almost no corporate/franchise taxes and a heavier reliance on property and sales taxes.