Levied in 44 states, corporate income taxes account for a relatively small share of state revenue—5.2 percent of state 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. collections and just over 2 percent of all state revenue, including federal transfers.[1] Top rates range from a low of 4.53 percent in North Dakota to a high of 12 percent in Iowa.
Iowa’s highest top corporate tax rate is followed by Pennsylvania’s, at 9.99 percent. Four states and the District of Columbia levy single-rate corporate taxes of 9 percent or more: Minnesota (9.84 percent), Alaska (9.4 percent), the District of Columbia (9.4 percent), Connecticut (9 percent), and New Jersey (9 percent). At the other end of the spectrum, six states have top rates at or below 5 percent: North Dakota at 4.53 percent, Colorado at 4.63 percent, and Mississippi, North Carolina, South Carolina, and Utah all at 5.0 percent.
Ohio, Texas, and Washington forego corporate income taxes but instead impose 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 on businesses. Nevada, South Dakota, and Wyoming levy neither corporate income nor gross receipts taxes.
Notable 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. Changes in 2015
Several states implemented corporate income tax rate reductions and other reforms between 2014 and 2015. Notable corporate income tax changes for 2015 include:
- reduction of Arizona’s corporate rate from 6.5 to 6.0 percent as part of a multi-year reduction to 4.9 percent by 2018;[2]
- the partial sunset of Illinois’ corporate income tax to 7.75 percent, from its prior rate of 9.5 percent (these rates include both the corporate income tax and a “personal property replacement tax” levied on an identical corporate income base);[3]
- reduction of New Mexico’s top rate from 7.3 to 6.9 percent, on track to reach 5.9 percent by 2018;[4]
- a rate cut in Rhode Island taking the state’s top rate from 9 to 7 percent;[5] and
- a tax reform package in the District of Columbia that, among other things, reduced business taxes from 9.975 to 9.4 percent, with planned future reductions designed to bring the rate to 8.25 percent.[6]
The following table includes the most up-to-date data available on state corporate income tax rates and brackets.
[1] U.S. Census Bureau, State & Local Government Finance, Fiscal Year 2012, http://www.census.gov/govs/local/.
[2] Tony Malandra, Huge Tax-Reduction Bill Passes Legislature, Signed by Governor, NFIB, Feb. 22, 2011, http://www.nfib.com/article/huge-tax-reduction-bill-passes-legislature-signed-by-governor-56064/.
[3] Illinois Department of Revenue, Illinois Income Tax Rate Decrease, Illinois DOR Informational Bulletin, Jan. 2015, http://www.revenue.state.il.us/Publications/Bulletins/2015/FY-2015-09.pdf.
[4] Liz Malm, New Mexico’s Lawmakers Compromise to Pass Corporate Tax Cut Reduction Package, Tax Foundation Tax Policy Blog, Mar. 20, 2013, https://taxfoundation.org/blog/new-mexicos-lawmakers-compromise-pass-corporate-tax-cut-reduction-package.
[5] Deloitte, Rhode Island Enacts Significant Tax Reforms, Multistate Tax External Alert, June 25, 2014, http://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-mts-alert-rhode-island-tax-reforms-062514.pdf.
[6] Joseph Henchman, D.C. Council to Vote on Tax Reform Package Today, June 24, 2014, Tax Foundation Tax Policy Blog, https://taxfoundation.org/blog/dc-council-vote-tax-reform-package-today.