Businesses paid $738.4 billion in state and local taxes in fiscal year (FY) 2017, an increase of 2% from FY2016, according to a newly released study of state and local business taxes prepared by Ernst & Young LLP in conjunction with the Council on State Taxation and the State Tax Research Institute.

The report, "Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2017," shows that state business taxes increased by 0.4% and local business tax grew by 3.7%. Growth in state and local tax revenue from business was concentrated in property taxes and sales taxes. In FY2017, business tax revenue accounted for approximately 44% of all state and local tax revenue. The business share has been within approximately 1 percentage point of 45% since FY2003.

The 16^th annual study analyzes all state and local business taxes paid in each of the 50 states and the District of Columbia. These taxes include business property taxes, sales and excise taxes paid by businesses on their input purchases and capital expenditures, gross receipts taxes, corporate income and franchise taxes, business and corporate license taxes, unemployment insurance taxes, individual income taxes paid by owners of non-corporate (pass-through) businesses, and other state and local taxes that are the statutory liability of business taxpayers.

Property taxes represent the largest share of total state and local business tax revenue, 38.9% or $287.4 billion in FY2017. Business property tax revenue increased 3.9%, marking the fifth time since FY2009 that the growth rate has been substantially higher than 1%.

General sales and use tax revenue derived from businesses on purchases of inputs, including capital equipment, totaled $157.4 billion, or 21.3% of all state and local business taxes, an increase of 2.7% over the previous year. Sales taxes on business inputs are the largest state tax paid by businesses, representing 32.4% of all state taxes paid by businesses.

State and local corporate income and business gross receipts tax revenue was $62.7 billion in FY2017, a decrease of 0.7% from FY2016. Federal tax reform, under the Tax Cuts and Jobs Act (TCJA), was signed into law in December of 2017 and significantly reduced federal corporate income taxes while expanding state income tax bases.

"While federal tax reform does not have a major impact on FY2017 state tax collections, it is expected to have significant impacts on both business and individual taxes over the coming decade," said Douglas Lindholm, COST President and Executive Director. "This study, together with the previously released EY study (in conjunction with COST/STRI) on 'The Impact of Federal Tax Reform on State Corporate Income Taxes' (March 2018), provides state policymakers with valuable information on how various tax proposals may impact state budgets and state competitiveness."

Other key findings include:

• Individual income taxes on pass-through business income accounted for 5.3% of total state and local business taxes. State and local individual income taxes on business income fell by 2.9% from FY2016.

• Severance taxes increased from $7.7 billion in FY2016 to $8.9 billion in FY2017, an increase of nearly 15.7%.

• State and local business taxes are equal to 4.5% of total US private-sector gross state product (GSP), which measures the total value of a state's annual private-sector production of goods and services. There is substantial variation across states, with taxes ranging from 3.4% to 7.5% of private-sector GSP.

"The study shows that there continue to be variations in the primary state and local taxes paid by businesses, but the total business tax contribution to state and local finances has remained stable," said Andrew Phillips, Principal in the Quantitative Economics and Statistics (QUEST) Practice of Ernst & Young LLP. "It also demonstrates that, on average, businesses continue to pay more in state and local taxes than they receive in benefits."