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

November 6, 2019

Janelle Fritts

Janelle Fritts

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 tax component of our Index measures each state’s principal tax on business activities. Most states levy a corporate 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 taxes, 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 inflation, 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.

Note: This map is part of a series in which we will examine each of the five major components of our 2020 State Business Tax Climate Index.

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Ranking Individual Income Taxes on the 2023 State Business Tax Climate Index

A 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.

Inflation 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.

A gross receipts tax is a tax 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.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.

A property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services.

An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.

A 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.