Ranking Corporate Income Taxes on the 2021 State Business Tax Climate Index

In the coming weeks, we will break down our recently released 2021 State Business Tax Climate Index with maps illustrating each of the five major components of the Index: corporate, individual, sales, property, and unemployment insurance 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. es. Today we look at states’ rankings on the corporate tax component, which accounts for 20.8 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 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 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. 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.

Corporate Tax Component of the State Business Tax Climate index (2018-2021)

State	2018 Rank	2019 Rank	2020 Rank	2021 Rank	Change from 2020 to 2021
Alabama	22	22	23	23	0
Alaska	26	25	26	26	0
Arizona	14	15	22	22	0
Arkansas	39	40	34	34	0
California	32	38	28	28	0
Colorado	18	5	7	10	-3
Connecticut	31	34	27	27	0
Delaware	50	50	50	50	0
Florida	19	11	9	6	3
Georgia	10	8	6	7	-1
Hawaii	11	12	16	18	-2
Idaho	25	28	29	29	0
Illinois	36	37	36	36	0
Indiana	23	18	11	13	-2
Iowa	48	47	48	46	2
Kansas	38	32	35	31	4
Kentucky	27	20	17	19	-2
Louisiana	40	35	37	35	2
Maine	41	33	38	37	1
Maryland	20	26	32	33	-1
Massachusetts	35	39	39	38	1
Michigan	8	13	18	20	-2
Minnesota	43	44	46	45	1
Mississippi	12	14	10	12	-2
Missouri	5	6	5	3	2
Montana	13	9	21	21	0
Nebraska	28	29	31	32	-1
Nevada	33	21	25	25	0
New Hampshire	45	46	43	41	2
New Jersey	42	49	49	48	1
New Mexico	24	23	20	9	11
New York	7	17	13	15	-2
North Carolina	3	3	3	4	-1
North Dakota	16	16	19	8	11
Ohio	47	43	42	42	0
Oklahoma	9	19	8	11	-3
Oregon	34	30	33	49	-16
Pennsylvania	44	45	45	43	2
Rhode Island	30	36	40	39	1
South Carolina	15	4	4	5	-1
South Dakota	1	1	1	1	0
Tennessee	21	27	24	24	0
Texas	49	48	47	47	0
Utah	4	7	12	14	-2
Vermont	37	41	44	44	0
Virginia	6	10	14	16	-2
Washington	46	42	41	40	1
West Virginia	17	24	15	17	-2
Wisconsin	29	31	30	30	0
Wyoming	1	1	1	1	0
District of Columbia	26	24	15	17	-2
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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