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1 Joseph Henchman, Location Matters and Connecticut 1 (2015)

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                Location Matters and Connecticut

                                Joseph Henchman
                    Vice President of State Projects, Tax Foundation

                             Connecticut State Tax Panel
                                September 16, 2015

Co-Chair Dyson, Co-Chair Nickerson, and members of the Panel:

My name is Joseph Henchman, and I'm vice president for state projects at the Tax
Foundation. I am pleased to appear before you again and reiterate our willingness to
provide any materials or research you may find helpful as you evaluate Connecticut's
tax system.

In that spirit, I would like to share an analysis we recently released called Location
Matters: The State Tax Costs of Doing Business. This major study calculates the total tax
cost faced in each state by seven hypothetical businesses: a corporate headquarters, an
R&D facility, a retail store, a capital-intensive manufacturer, a labor-intensive
manufacturer, a call center, and a distribution center.

Our economists developed profiles for each of these firms based on comparative data:
so many square footage, so many employees, and so forth. We then worked with the
audit, tax, and advisory firm KPMG LLP to calculate the tax bills for each of these firms
in all 50 states. We included all applicable state and local taxes, including corporate
income taxes, property taxes, sales taxes on business inputs, unemployment insurance
taxes, and franchise taxes. We calculated the tax bill twice: once for a new firm eligible
for available incentives, and once for a mature firm that generally cannot access such
incentives. We used the tax code as it stood on April 1, 2014, the most recent date
where we had all available data from all 50 states. It does not include federal taxes: just
state and local taxes.

Connecticut's results are attached to this testimony. A hypothetical corporate
headquarters, for example, would pay a 19 percent effective tax rate to Connecticut,
the 44th lowest (or 6th highest), beaten only by New Jersey, Washington state, Iowa,
Minnesota, Pennsylvania, and New York. A hypothetical R&D facility would pay a 14
percent total tax rate, 42nd lowest (or 8th highest). Distribution centers, call centers,
and retailers also would have relatively high tax bills in Connecticut. Manufacturing
facilities, by contrast, face relatively lower tax bills.

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