Suffering from Cognitive Dissonance

Article excerpt

Coopers & Lybrand recently released the results of a study of how companies are dealing with the increasing enforcement and burden of state and local tax liabilities. The survey of 348 senior executives revealed that most companies have not geared up to handle the challenge. According to C&L partner Robert Wood, they are suffering from "cognitive dissonance."

C&L's report introduced the survey by indicating that states increased tax revenues by $15 billion in fiscal 1992, most originating in five states: California, Pennsylvania, New York, Texas and Connecticut. The remaining states faced the budget squeezes of economic downturn by making spending cuts, many of which are the type that cannot be duplicated.

The participants reported that the share of their company's total taxes imposed by state and local governments represented 46% of their company's total tax burden. An overwhelming majority (83%) experienced an increase in state and local taxes over the past three years. And more than that (92%) anticipate increases over the next three years, and 30% expect the increases to be significant.

Most of those surveyed said that corporate income tax was the most significant contributor to the increase in state and local taxes. However, corporate income taxes actually represent a relatively modest share of total tax revenues collected by state and local governments. Property and sales and use taxes are their major sources of revenues according to federal government statistics. …