Ranking State Tax Systems: Corporate Taxes

Our 2023 State Business Tax Climate Index, released in October, considers five main 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. categories: corporate taxes, individual income taxes, sales and excise taxes, property and wealth taxes, and unemployment insurance taxes. Today, we take a closer look at states’ rankings on the corporate tax component, which accounts for 21.1 percent of each state’s overall rank.

The corporate tax component of our State Business Tax Climate 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 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.

All corporate income taxes fall on capital investment, but the structure should not make matters worse, and policymakers should take care not to distort investment decisions through the use of targeted incentives for select firms or activities instead of a lower rate for all businesses. The Index rewards neutrality while penalizing states with alternative minimum taxes, heavy reliance on incentives, and provisions leading to double taxation.

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.

Corporate Tax Component of the State Business Tax Climate Index (2020-2023)

State	2020 Rank	2021 Rank	2022 Rank	2023 Rank	Change from 2022 to 2023
Alabama	23	23	17	18	-1
Alaska	25	25	27	28	-1
Arizona	21	22	23	23	0
Arkansas	33	33	29	29	0
California	27	27	46	46	0
Colorado	7	9	6	7	-1
Connecticut	26	26	26	27	-1
Delaware	50	50	50	50	0
Florida	9	6	7	10	-3
Georgia	6	7	8	8	0
Hawaii	17	19	19	19	0
Idaho	28	28	28	26	2
Illinois	35	35	38	38	0
Indiana	11	12	11	11	0
Iowa	48	46	33	34	-1
Kansas	34	30	21	21	0
Kentucky	13	15	15	15	0
Louisiana	36	34	34	32	2
Maine	37	36	35	35	0
Maryland	31	32	32	33	-1
Massachusetts	38	37	36	36	0
Michigan	18	20	20	20	0
Minnesota	45	43	43	43	0
Mississippi	10	13	13	13	0
Missouri	3	3	3	3	0
Montana	20	21	22	22	0
Nebraska	30	31	31	30	1
Nevada	24	24	25	25	0
New Hampshire	42	44	44	44	0
New Jersey	49	48	48	48	0
New Mexico	22	11	12	12	0
New York	14	16	24	24	0
North Carolina	4	4	4	5	-1
North Dakota	19	8	9	9	0
Ohio	41	40	39	39	0
Oklahoma	8	10	10	4	6
Oregon	32	49	49	49	0
Pennsylvania	44	42	42	42	0
Rhode Island	40	39	40	40	0
South Carolina	5	5	5	6	-1
South Dakota	1	1	1	1	0
Tennessee	47	45	45	45	0
Texas	46	47	47	47	0
Utah	12	14	14	14	0
Vermont	43	41	41	41	0
Virginia	15	17	16	17	-1
Washington	39	38	37	37	0
West Virginia	16	18	18	16	2
Wisconsin	29	29	30	31	-1
Wyoming	1	1	1	1	0
District of Columbia	27	27	28	29	-1
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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