Ranking Corporate Income Taxes on the 2021 State Business Tax Climate Index

November 4, 2020

In the coming weeks, we will break down our recently released 2021 State Business Tax Climate Index with maps illustrating each of the five major components of the Index: corporate, individual, sales, property, and unemployment insurance taxes. Today we look at states’ rankings on the corporate tax component, which accounts for 20.8 percent of each state’s overall rank.

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.

Unlike other studies that look solely at tax burdens, the Index measures how well or poorly each state structures its tax system. It is concerned with the how, not the how much, of state revenue, because there are better and worse ways to levy taxes. Our corporate tax component, for example, scores states not just on their corporate tax rates and brackets, but also on how they handle net operating losses, whether they levy gross receipts-style taxes (which are more economically harmful than corporate income taxes), whether businesses can fully expense purchases of machinery and equipment, and whether states index their brackets for inflation, among other factors.

Click here to see an interactive version of states’ corporate tax rankings, and then click on your state for more information about how its tax system compares both regionally and nationally.

Ranking state corporate tax codes on the 2021 State Business Tax Climate Index. Best and worst corporate tax codes in the United States

Corporate Tax Component of the State Business Tax Climate index (2018-2021)
State 2018 Rank 2019 Rank 2020 Rank 2021 Rank Change from 2020 to 2021
Alabama 22 22 23 23 0
Alaska 26 25 26 26 0
Arizona 14 15 22 22 0
Arkansas 39 40 34 34 0
California 32 38 28 28 0
Colorado 18 5 7 10 -3
Connecticut 31 34 27 27 0
Delaware 50 50 50 50 0
Florida 19 11 9 6 3
Georgia 10 8 6 7 -1
Hawaii 11 12 16 18 -2
Idaho 25 28 29 29 0
Illinois 36 37 36 36 0
Indiana 23 18 11 13 -2
Iowa 48 47 48 46 2
Kansas 38 32 35 31 4
Kentucky 27 20 17 19 -2
Louisiana 40 35 37 35 2
Maine 41 33 38 37 1
Maryland 20 26 32 33 -1
Massachusetts 35 39 39 38 1
Michigan 8 13 18 20 -2
Minnesota 43 44 46 45 1
Mississippi 12 14 10 12 -2
Missouri 5 6 5 3 2
Montana 13 9 21 21 0
Nebraska 28 29 31 32 -1
Nevada 33 21 25 25 0
New Hampshire 45 46 43 41 2
New Jersey 42 49 49 48 1
New Mexico 24 23 20 9 11
New York 7 17 13 15 -2
North Carolina 3 3 3 4 -1
North Dakota 16 16 19 8 11
Ohio 47 43 42 42 0
Oklahoma 9 19 8 11 -3
Oregon 34 30 33 49 -16
Pennsylvania 44 45 45 43 2
Rhode Island 30 36 40 39 1
South Carolina 15 4 4 5 -1
South Dakota 1 1 1 1 0
Tennessee 21 27 24 24 0
Texas 49 48 47 47 0
Utah 4 7 12 14 -2
Vermont 37 41 44 44 0
Virginia 6 10 14 16 -2
Washington 46 42 41 40 1
West Virginia 17 24 15 17 -2
Wisconsin 29 31 30 30 0
Wyoming 1 1 1 1 0
District of Columbia 26 24 15 17 -2

Note: A rank of 1 is best, 50 is worst. All scores are for fiscal years. DC’s score and rank do not affect other states.

Source: Tax Foundation.

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A gross receipts 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.

A 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.