New Tax Foundation Study Shows Half of U.S. States Tax Businesses More Heavily than Any Other Nation Does

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

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