Do Calif. firms pay fair share of taxes?
California businesses are getting more bang for their tax bucks than most other states, according to a new study by the accounting firm Ernst & Young for the Council on State Taxation.
Local companies pay between a dollar and $2.68 in taxes for every dollar of government services they receive. That's better than 44 other states and the District of Columbia, according to Ernst & Young'scalculation.
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Why the range? If you calculate that businesses directly benefit from half the money government spends on education, then California businesses get a dollar's benefit for every tax dollar they pay. If you think they get no direct benefit from public educational spending, businesses get $1 in benefits for every $2.68 in taxes they pay.
"Due to the large expenditures of education in every state, the ratio of business taxes to government expenditures for services benefiting business is sensitive to assumptions about who benefits from public spending for education," the report says.
In California there has been debate for years about how well or how poorly the schools prepare students for the work world, from technical training to soft skills like showing up on time to basics like the ability to read a work manual.
But that debate over the value of education aside, the tax/benefit ratio is significant to businesses, Ernst & Young says, because it influences where companies choose to locate.
"This comparative measure was developed to answer questions from legislators asking, 'Are businesses paying their fair share of taxes?' Increasing economic competition among states and around the globe has transformed the initial question into a more fundamental query: 'What is the basis or rationale for business taxation at the state or local level?'
"The basic rationale for business taxes, recognizing that the economic burden of business taxes are ultimately borne by consumers or owners...or workers is to pay for government services that directly benefit business..."
A separate Ernst & Young analysis showed that business taxes are passed on to individuals in the form of