Key Findings
- Forty-four states levy a corporate income tax. Rates range from 2.5 percent in North Carolina to 12 percent in Iowa.
- Six states—Alaska, Illinois, Iowa, Minnesota, New Jersey, and Pennsylvania—levy top marginal corporate income tax rates of 9 percent or higher.
- Eight states—Arizona, Colorado, Kentucky, Mississippi, North Carolina, North Dakota, South Carolina, and Utah—have top rates at or below 5 percent.
- Nevada, Ohio, Texas, and Washington impose gross receipts taxes instead of corporate income taxes. Gross receipts taxes are generally thought to be more economically harmful than corporate income taxes.
- South Dakota and Wyoming are the only states that do not levy a corporate income or 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. .
Corporate income taxes are levied in 44 states. Though often thought of as a major 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. type, corporate income taxes account for an average of just 3.38 percent of state tax collections and 2.24 percent of state general revenue.[1]
Iowa levies the highest top statutory corporate tax rate at 12 percent,[2] followed by New Jersey (11.5 percent), Pennsylvania (9.99 percent), and Minnesota (9.8 percent). Two other states (Alaska and Illinois) levy rates of 9 percent or higher.
Conversely, North Carolina’s flat rate of 2.5 percent is the lowest in the country, followed by rates in North Dakota (4.31 percent) and Colorado (4.63 percent). Four other states impose rates at or below 5 percent: Arizona (4.9 percent), Utah (4.95 percent), and Kentucky, Mississippi, and South Carolina (5 percent).
Nevada, Ohio, Texas, and Washington forgo corporate income taxes but instead impose gross receipts taxes on businesses, generally thought to be more economically harmful due to tax pyramidingTax pyramiding occurs when the same final good or service is taxed multiple times along the production process. This yields vastly different effective tax rates depending on the length of the supply chain and disproportionately harms low-margin firms. Gross receipts taxes are a prime example of tax pyramiding in action. and nontransparency.[3] Delaware imposes gross receipts taxes in addition to corporate income taxes, as do several states, like Pennsylvania, Virginia, and West Virginia, which permit gross receipts taxes at the local (but not state) level. South Dakota and Wyoming levy neither corporate income nor gross receipts taxes.
Thirty-four states and the District of Columbia have single-rate corporate tax systems. The greater propensity toward single-rate systems for corporate tax than individual income tax (11 states) is likely because there is no meaningful “ability to pay” concept in corporate taxation. Jeffrey Kwall, professor of law at Loyola University Chicago School of Law, notes that:
Graduated corporate rates are inequitable—that is, the size of a corporation bears no necessary relation to the income levels of the owners. Indeed, low-income corporations may be owned by individuals with high incomes, and high-income corporations may be owned by individuals with low incomes.[4]
A single-rate system minimizes the incentive for firms to engage in economically wasteful tax planning to mitigate the damage of higher marginal tax rates that some states levy as taxable income rises.
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SubscribeNotable 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 2019
Several states implemented corporate income tax rate changes over the past year, among other revisions and reforms. Notable changes for 2019 include:
- Connecticut reduced its surtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. in 2018 for corporations with more than $100 million in gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” from 20 to 10 percent, and the surtax expired at the start of the 2019 tax year. Absent its reimposition during the 2019 legislative session, this brings the top marginal rate down to 7.50 percent.
- Georgia lowered its top corporate income tax rate from 6 percent to 5.75 percent and doubled the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. .[5] A further reduction to 5.5 percent is scheduled for 2020, subject to legislative reaffirmation.
- Idaho decreased its rate from 7.4 percent to 6.925 percent.[6]
- Mississippi continued phasing out its 3 percent corporate income tax bracket by exempting the first $2,000 of income this year. The 4 and 5 percent brackets remain in place.[7]
- Indiana’s rate decreased to 5.75 percent on July 1, 2018, and a further reduction to 5.5 percent is scheduled for July 1, 2019.[8]
- New Hampshire’s rate dropped to 7.7 percent from 8.2 percent.[9]
- New Jersey added a temporary surcharge for businesses with income of over $1 million, bringing its top tax rate to 11.5 percent.
- As North Carolina continued to meet revenue goals, the state reduced its lowest rate in the nation from 3 percent to 2.5 percent.[10]
- Utah shaved its corporate rate to 4.95 from 5 percent in March 2018.[11]
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(a) Nevada, Ohio, Texas, and Washington do not have a corporate income tax but do have a gross receipts tax with rates not strictly comparable to corporate income tax rates. Delaware has gross receipts taxes in addition to corporate income taxes, as do several states like Pennsylvania, Virginia, and West Virginia, which permit gross receipts taxes at the local (but not state) level. (b) Georgia’s corporate income tax rate will revert to 6% on January 1, 2026. The state could see a drop to 5.5% in 2019, pending legislative approval. (c) Illinois’ rate includes two separate corporate income taxes, one at a 7% rate and one at a 2.5% rate. (d) Indiana’s rate will change to 5.5% on July 1, 2019. The rate is scheduled to decrease to 4.9% by 2022. (e) Iowa’s rate is scheduled to drop to 9.8 percent by 2021, subject to revenue availability. (f) Mississippi continues to phase out the 3 percent bracket by increasing the exemption by $1,000 a year. By the start of 2022, the 3 percent bracket will be fully eliminated. (g) Scheduled reform in 2020 will subject nearly all Missouri companies to a single sales factor appointment, permitting a rate reduction from 6.25% to 4%. (h) In New Jersey, the rates indicated apply to a corporation’s entire net income rather than just income over the threshold. A temporary surcharge is in effect, bringing the rate to 11.5 percent for businesses with income over $1 million. Note: In addition to regular income taxes, many states impose other taxes on corporations such as gross receipts taxes and franchise taxes. Some states also impose an alternative minimum tax and special rates on financial institutions. Sources: Tax Foundation; state tax statutes, forms, and instructions; Bloomberg Tax |
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| State | Rates | Brackets | |
|---|---|---|---|
| Ala. | 6.5% | > | $0 |
| Alaska | 0.0% | > | $0 |
| 2.0% | > | $25,000 | |
| 3.0% | > | $49,000 | |
| 4.0% | > | $74,000 | |
| 5.0% | > | $99,000 | |
| 6.0% | > | $124,000 | |
| 7.0% | > | $148,000 | |
| 8.0% | > | $173,000 | |
| 9.0% | > | $198,000 | |
| 9.4% | > | $222,000 | |
| Ariz. | 4.9% | > | $0 |
| Ark. | 1.0% | > | $0 |
| 2.0% | > | $3,000 | |
| 3.0% | > | $6,000 | |
| 5.0% | > | $11,000 | |
| 6.0% | > | $25,000 | |
| 6.5% | > | $100,000 | |
| Calif. | 8.84% | > | $0 |
| Colo. | 4.63% | > | $0 |
| Conn. | 7.5% | > | $0 |
| Del. (a) | 8.7% | > | $0 |
| Fla. | 5.5% | > | $0 |
| Ga. (b) | 5.75% | > | $0 |
| Hawaii | 4.4% | > | $0 |
| 5.4% | > | $25,000 | |
| 6.4% | > | $100,000 | |
| Idaho | 6.925% | > | $0 |
| Ill. (c) | 9.5% | > | $0 |
| Ind. (d) | 5.75% | > | $0 |
| Iowa (e) | 6% | > | $0 |
| 8% | > | $25,000 | |
| 10% | > | $100,000 | |
| 12% | > | $250,000 | |
| Kans. | 4% | > | $0 |
| 7% | > | $50,000 | |
| Ky. | 5% | > | $0 |
| La. | 4% | > | $0 |
| 5% | > | $25,000 | |
| 6% | > | $50,000 | |
| 7% | > | $100,000 | |
| 8% | > | $200,000 | |
| Maine | 3.50% | > | $0 |
| 7.93% | > | $350,000 | |
| 8.33% | > | $1,050,000 | |
| 8.93% | > | $3,500,000 | |
| Md. | 8.25% | > | $0 |
| Mass. | 8% | > | $0 |
| Mich. | 6% | > | $0 |
| Minn. | 9.8% | > | $0 |
| Miss. (f) | 3% | > | $2,000 |
| 4% | > | $5,000 | |
| 5% | > | $10,000 | |
| Mo. (g) | 6.25% | > | $0 |
| Mont. | 6.75% | > | $0 |
| Nebr. | 5.58% | > | $0 |
| 7.81% | > | $100,000 | |
| Nev. | (a) | ||
| N.H. | 7.7% | > | $0 |
| N.J. (h) | 6.5% | > | $0 |
| 7.5% | > | $50,000 | |
| 9.0% | > | $100,000 | |
| 11.5% | > | $1,000,000 | |
| N.M. | 4.8% | > | $0 |
| 5.9% | > | $500,000 | |
| N.Y. | 6.5% | > | $0 |
| N.C. | 2.5% | > | $0 |
| N.D. | 1.41% | > | $0 |
| 3.55% | > | $25,000 | |
| 4.31% | > | $50,000 | |
| Ohio | (a) | ||
| Okla. | 6% | > | $0 |
| Ore. | 6.6% | > | $0 |
| 7.6% | > | $1,000,000 | |
| Pa. | 9.99% | > | $0 |
| R.I. | 7% | > | $0 |
| S.C. | 5% | > | $0 |
| S.D. | None | ||
| Tenn. | 6.5% | > | $0 |
| Tex. | (a) | ||
| Utah | 4.95% | > | $0 |
| Vt. | 6.0% | > | $0 |
| 7.0% | > | $10,000 | |
| 8.5% | > | $25,000 | |
| Va. (a) | 6% | > | $0 |
| Wash. | (a) | ||
| W.Va. | 6.5% | > | $0 |
| Wis. | 7.9% | > | $0 |
| Wyo. | None | ||
| D.C. | 8.25% | > | $0 |
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Subscribe[1] “2016 State & Local Government Finance Historical Datasets and Tables,” U.S. Census Bureau, https://www.census.gov/data/datasets/2016/econ/local/public-use-datasets.html.
[2] Although Iowa has the highest top marginal corporate income tax in the nation, its rates are not directly comparable with those of other states because the state provides a deduction for federal taxes paid. Iowa’s rate is scheduled to drop to 9.8 percent by 2021, subject to revenue availability.
[3] Justin Ross, “Gross Receipts Taxes: Theory and Recent Evidence,” Tax Foundation, Oct. 6, 2016, https://taxfoundation.org/gross-receipts-taxes-theory-and-recent-evidence/.
[4] Jeffrey L. Kwall, “The Repeal of Graduated Corporate Tax Rates,” Tax Notes, June 27, 2011, 1395.
[5] Katherine Loughead, “Five States Accomplish Meaningful Tax Reform in the Wake of the Tax Cuts and Jobs Act,” Tax Foundation, July 23, 2018, https://taxfoundation.org/five-states-accomplish-meaningful-tax-reform-wake-tax-cuts-jobs-act/.
[6] “Tax Reform,” Idaho State Tax Commission, June 21, 2018, https://tax.idaho.gov/i-2019.cfm.
[7] Joseph Bishop-Henchman, “Mississippi Approves Franchise Tax Phasedown, Income Tax Cut,” Tax Foundation, May 16, 2016, https://taxfoundation.org/mississippi-approves-franchise-tax-phasedown-income-tax-cut/.
[8] Scott Drenkard, “Indiana’s 2014 Tax Package Continues State’s Pattern of Year-Over-Year Improvements,” Tax Foundation, April 7, 2014, https://taxfoundation.org/indiana-s-2014-tax-package-continues-state-s-pattern-year-over-year-improvements/.
[9] Jared Walczak, “Tax Changes Taking Effect January 1, 2019,” Tax Foundation, Dec. 27, 2018, https://taxfoundation.org/state-tax-changes-january-2019/.
[10] Id.
[11] Katherine Loughead, “Five States Accomplish Meaningful Tax Reform in the Wake of the Tax Cuts and Jobs Act.”
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