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Editorial: Pricey biz score puts state’s brain prowess to the test

A recent ranking found Massachusetts to be among the least competitive property-tax states, one component of the nonprofit Tax Foundation’s 2022 State Business Tax Climate Index.

The index’s property-tax component evaluates state and local taxes on real and personal property, net worth, and asset transfers. It accounts for 14.4% of each state’s overall Index score.

In Massachusetts, property taxes account for a big share of tax revenue. A map created by the Tax Foundation, a group that favors tax policies that create economic growth, shows just where the state stands.

The Bay State ranks in the top six worst states for property tax competitiveness, along with neighboring Connecticut, Vermont, New York and New Hampshire.

It makes sense for New Hampshire to be on the high property-tax list, since it’s one of nine states without an income tax. That, along with its lack of a sales tax, necessarily puts higher tax burden on property owners.

But unlike New Hampshire, Massachusetts and those other deep-blue states on the least competitive property-tax list don’t have the Granite State’s other tax-mitigating benefits.

When it comes to taxes, they possess the worst of both tax worlds – all the disadvantages and none of the advantages.
That concerns at least one conservative fiscal watchdog organization.

The Massachusetts Fiscal Alliance, a group that favors a lower tax environment, has made its displeasure with high property taxes known.

A deeper dive into the Tax Foundation’s methodology shines an even more unflattering light on Massachusetts’ tax mechanism.

According to the Foundation, property taxes matter to businesses because they own a significant amount of real property, and tax rates on commercial property are often higher than the rates on comparable residential property.

Many states and localities also levy taxes not only on the land and buildings a business owns, but also on tangible property, such as machinery, equipment, and office furniture, as well as intangible property like patents and trademarks.

Across the nation, property taxes impose one of the most substantial state and local tax burdens most businesses face.

In fiscal 2020, taxes on real, personal, and utility property accounted for almost 38% of all taxes paid by businesses to state and local governments, according to the Council on State Taxation.

Although taxes on real property tend to be unpopular, a well-structured tax generally is more transparent than most other taxes.

However, the Foundation believes taxes on intangible property, wealth, and asset transfers are both harmful and distortive. States that levy such taxes — including capital stock taxes, estate, inheritance, gift, and real estate transfer taxes—are less economically attractive, as they create disincentives for investment and encourage businesses to make choices based on tax codes that they would not otherwise make.

Of the five taxes just mentioned, Massachusetts collects three of them – capital gains, estate and real estate transfers.

States better positioned to attract business investment maintain competitive, real property tax rates and avoid harmful taxes on tangible personal property, intangible property, wealth, and asset transfers.

Those types of states include Indiana, New Mexico, Idaho, Delaware, Nevada, and Ohio, which compiled the Foundation’s best property-tax scores.

It’s no coincidence that Intel, the world’s largest semiconductor manufacturer, announced plans in January to build a $29 billion computer chip manufacturing center in Ohio.

It’s true that considerations other than tax climate factor into a corporation’s decision to expand or relocate to a particular state.

Massachusetts, blessed with world-class universities, hospitals, and other research institutions, provides a unique knowledge base that businesses can tap.

But that’s offset by soaring prices of residential real estate, which fuels those high property taxes.

In our state’s case, an entrepreneur or corporate CEO must ultimately decide which model makes the most economic sense – one that’s tax friendly or one based on intellectual capital?