Individual income taxes are a major source of state government revenue, accounting for more than a third of state tax collections:
Compare the latest 2023 sales tax rates as of July 1st. Sales tax rate differentials can induce consumers to shop across borders or buy products online.
New Jersey levies the highest top statutory corporate tax rate at 11.5 percent, followed by Minnesota (9.8 percent) and Illinois (9.50 percent). Alaska and Pennsylvania levy top statutory corporate tax rates of 9.40 percent and 8.99 percent, respectively.
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States compete with each other in a variety of ways, including in attracting (and retaining) residents. Sustained periods of inbound migration lead to (and reflect) greater economic output and growth. Prolonged periods of net outbound migration, however, can strain state coffers, contributing to revenue declines as economic activity and tax revenue follow individuals out of state.
While many factors influence business location and investment decisions, sales taxes are something within lawmakers’ control that can have immediate impacts.
An ideal sales tax applies to a broad base of final consumer goods and services, with few exemptions, and is levied at a low rate. Broad-based, low-rate tax structures minimize tax-induced economic distortions that can occur when people change their purchasing behavior because of tax differences.
Excessive tax rates on cigarettes in some states induce substantial black and gray market movement of tobacco products into high-tax states from low-tax states or foreign sources. New York has the highest inbound smuggling activity, with an estimated 53.2 percent of cigarettes consumed in the state deriving from smuggled sources.
A typical American household with four phones on a “family share” wireless plan can expect to pay about $270 per year (or 22 percent of their cell phone bill) in taxes, fees, and surcharges.
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.