A new Tax Foundation Fiscal Fact shows that nearly half of U.S. states tax job providers at a higher rate than any other country in the developed world. Counting the federal rate alone, the U.S. has the world’s highest corporate tax rate, but including average sub-national rates (federal plus state in the U.S.), Japan edges out the U.S. for the highest-tax location. This study breaks the tax down by state, adding each state’s corporate tax rate to the federal corporate tax rate. The results show that 25 states impose, when combined with the federal rate, a higher corporate tax rate than in any other nation. In fact: 24 states have a combined corporate tax rate higher than top-ranked Japan. 32 states have a combined corporate tax rate higher than third-ranked Germany. 46 states have a combined corporate tax rate higher than fourth-ranked Canada. All 50 states have a combined corporate tax rate higher than fifth-ranked France. According to Tax Foundation president Scott Hodge, the study’s author: This is startling news for America’s businesses and workers. Tax competition for jobs and investment is fierce, and the U.S. continues to fall further and further behind. Our states should be the world’s leaders in many things, but high taxation should not be one of them. The high federal corporate tax rate is literally crushing states’ competitive abilities. That means fewer jobs for American workers. If federal lawmakers are serious about making the U.S. corporate tax system more competitive globally, they will have to partner with state officials to lower the nation’s overall corporate tax burden. Likewise, state officials should have a vested interest in cutting the federal corporate tax rate because there is only so much they can do to improve their own competitiveness. After all, even corporations in the three states that do not impose a major state-level corporate tax—Nevada, South Dakota, and Wyoming—still shoulder a higher corporate tax rate than France, and 25 other major countries, because of the 35 percent federal corporate rate. The table below lists each state’s combined corporate tax rate and then compares them (bolded) with the rates of our major trading partners and competitors. Comparing U.S. State Corporate Taxes to the OECD, 2007 OECD Overall Rank Country/State Federal Rate Adjusted Top State Corporate Tax Rate Combined Federal and State Rate (Adjusted) (a) Iowa 35 12 41.6 Pennsylvania 35 9.99 41.5 Minnesota 35 9.8 41.4 Massachusetts 35 9.5 41.2 Alaska 35 9.4 41.1 New Jersey 35 9.36 41.1 Rhode Island 35 9 40.9 West Virginia 35 9 40.9 Maine 35 8.93 40.8 Vermont 35 8.9 40.8 California 35 8.84 40.7 Delaware 35 8.7 40.7 Indiana 35 8.5 40.5 New Hampshire 35 8.5 40.5 Wisconsin 35 7.9 40.1 Nebraska 35 7.81 40.1 Idaho 35 7.6 39.9 New Mexico 35 7.6 39.9 Connecticut 35 7.5 39.9 New York 35 7.5 39.9 Kansas 35 7.35 39.8 Illinois 35 7.3 39.7 Maryland 35 7 39.6 North Dakota 35 7 39.6 1 Japan 30 11.56 39.54 Arizona 35 6.968 39.5 North Carolina 35 6.9 39.5 Montana 35 6.75 39.4 Oregon 35 6.6 39.3 2 United States 35 6.57 39.27 Arkansas 35 6.5 39.2 Tennessee 35 6.5 39.2 *Washington 35 6.4 39.2 Hawaii 35 6.4 39.2 3 Germany 26.38 17.0 38.9 *Michigan 35 6 38.9 Georgia 35 6 38.9 Kentucky 35 6 38.9 Oklahoma 35 6 38.9 Virginia 35 6 38.9 Florida 35 5.5 38.6 Louisiana 35 8 38.5 Missouri 35 6.25 38.4 Ohio 35 5.1 38.3 Mississippi 35 5 38.3 South Carolina 35 5 38.3 Utah 35 5 38.3 Colorado 35 4.63 38.0 Alabama 35 6.5 37.8 4 Canada 22.1 14 36.1 *Texas 35 1.6 36.0 Nevada 35 0 35.0 South Dakota 35 0 35.0 Wyoming 35 0 35.0 5 France 34.43 0 34.4 6 Belgium 33.99 0 33.99 7 Italy 33 0 33 8 New Zealand 33 0 33 9 Spain 32.5 0 32.5 10 Luxembourg 22.88 7.5 30.38 11 Australia 30 0 30 12 United Kingdom 30 0 30 13 Mexico 28 0 28 14 Norway 28 0 28 15 Sweden 28 0 28 16 Korea 25 2.5 27.5 17 Portugal 25 1.5 26.5 18 Finland 26 0 26 19 Netherlands 25.5 0 25.5 20 Austria 25 0 25 21 Denmark 25 0 25 22 Greece 25 0 25 23 Czech Republic 24 0 24 24 Switzerland 8.50 14.64 21.32 25 Hungary 20 0 20 26 Turkey 20 0 20 27 Poland 19 0 19 28 Slovak Republic 19 0 19 29 Iceland 18 0 18 30 Ireland 12.5 0 12.5 *Michigan, Texas and Washington have gross receipts taxes rather than traditional corporate income taxes. For comparison purposes, we converted the gross receipts taxes into an effective CIT rate. See footnote 2 for methodology. (a) Combined rate adjusted for federal deduction of state taxes paid Source: OECD, http://www.oecd.org/dataoecd/26/56/33717459.xls Read the full study. Read the news release. More Tax Foundation data on corporate taxes: National-Level Statutory Corporate Tax Rates, 2007 Federal Corporate Income Tax Rates, Income Years 1909-2007 State and Local Corporate Income Tax Collections Per Household, Fiscal Year 2005 State Business Tax Climate Index Rankings, 2003-2008
