Ranking Corporate Income Taxes on the 2020 State Business Tax Climate Index

In the coming weeks, we will break down our recently released 2020 State Business Tax Climate Index with maps illustrating each of the five major components of the Index: corporate, individual, sales, property, and unemployment insurance taxes. Today we look at states’ rankings on the corporate tax component, which accounts for 19.7 percent of each state’s overall rank.

The corporate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. component of our Index measures each state’s principal tax on business activities. Most states levy a corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. on a company’s profits (receipts minus most business expenses, including compensation and the cost of goods sold), while some states levy gross receipts taxA gross receipts tax, also known as a turnover tax, is applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. es, which allow few or no deductions for a company’s expenses.

Unlike other studies that look solely at tax burdens, the Index measures how well or poorly each state structures its tax system. It is concerned with the how, not the how much, of state revenue, because there are better and worse ways to levy taxes. Our corporate tax component, for example, scores states not just on their corporate tax rates and brackets, but also on how they handle net operating losses, whether they levy gross receipts-style taxes (which are more economically harmful than corporate income taxes), whether businesses can fully expense purchases of machinery and equipment, and whether states index their brackets for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. , among other factors.

Click here to see an interactive version of states’ corporate tax rankings, and then click on your state for more information about how its tax system compares both regionally and nationally.

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Corporate Tax Component of the State Business Tax Climate Index (2017–2020)

State	2017 Rank	2018 Rank	2019 Rank	2020 Rank	Change from 2019 to 2020
Alabama	14	22	22	23	-1
Alaska	27	26	25	26	-1
Arizona	19	14	15	22	-7
Arkansas	39	39	40	34	6
California	33	32	38	28	10
Colorado	18	18	5	7	-2
Connecticut	32	31	34	27	7
Delaware	50	50	50	50	0
Florida	19	19	11	9	2
Georgia	11	10	8	6	2
Hawaii	6	11	12	16	-4
Idaho	24	25	28	29	-1
Illinois	26	36	37	36	1
Indiana	23	23	18	11	7
Iowa	48	48	47	48	-1
Kansas	38	38	32	35	-3
Kentucky	28	27	20	17	3
Louisiana	40	40	35	37	-2
Maine	41	41	33	38	-5
Maryland	21	20	26	32	-6
Massachusetts	36	35	39	39	0
Michigan	9	8	13	18	-5
Minnesota	43	43	44	44	0
Mississippi	12	12	14	10	4
Missouri	5	5	6	5	1
Montana	13	13	9	21	-12
Nebraska	29	28	29	31	-2
Nevada	34	33	21	25	-4
New Hampshire	47	45	46	43	3
New Jersey	42	42	49	49	0
New Mexico	25	24	23	20	3
New York	8	7	17	13	4
North Carolina	4	3	3	3	0
North Dakota	16	16	16	19	-3
Ohio	46	47	43	42	1
Oklahoma	10	9	19	8	11
Oregon	35	34	30	33	-3
Pennsylvania	44	44	45	46	-1
Rhode Island	31	30	36	40	-4
South Carolina	15	15	4	4	0
South Dakota	1	1	1	1	0
Tennessee	22	21	27	24	3
Texas	49	49	48	47	1
Utah	3	4	7	12	-5
Vermont	37	37	41	45	-4
Virginia	7	6	10	14	-4
Washington	45	46	42	41	1
West Virginia	17	17	24	15	9
Wisconsin	30	29	31	30	1
Wyoming	1	1	1	1	0
District of Columbia	28	26	24	15	9
Note: A rank of 1 is best, 50 is worst. All scores are for fiscal years. DC’s score and rank do not affect other states.
Source: Tax Foundation.

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