Movers and Shakers in the 2026 State Tax Competitiveness Index
In the spirit of change and improvement, it’s worth looking back to see which states have truly embraced tax competitiveness since 2020, and which ones have lagged behind.
6 min read
Iowa | #17 Overall
Iowa’s Index ranking has improved substantially in recent years as the result of several rounds of pro-growth and structurally sound tax reform that have greatly improved the state’s competitive standing. Under recent reforms, Iowa has lowered income tax rates, eliminated an unusual and counterproductive policy of federal deductibility, repealed the alternative minimum tax, and, as of 2025, has now phased out the inheritance tax.
In 2025, Iowa moved to a flat 3.8 percent income tax, with proposals for further reduction, which has improved the state’s overall score. Unusually, Iowa has a graduated-rate corporate income tax structure but has enacted tax triggers to reduce and flatten the rate over time as revenue becomes available. Iowa is also among the states that allow local income taxes.
While Iowa’s combined state and average local sales tax rate is slightly below average, the state’s property tax burden is somewhat high, and unlike many of its regional competitors, Iowa not only taxes tangible personal property (machinery and equipment) but does so without providing a de minimis exemption for small businesses. The state also has split roll property taxes, with higher ratios applied to businesses and renters than to homeowners.
| Category | Rank | Rank Change | Score |
|---|---|---|---|
| Overall | 17 | 2 | 5.40 |
| Corporate Taxes | 25 | -4 | 5.32 |
| Individual Income Taxes | 11 | 7 | 5.95 |
| Sales Taxes | 11 | 0 | 5.49 |
| Property Taxes | 33 | -6 | 4.81 |
| Unemployment Insurance Taxes | 35 | -1 | 4.60 |
- Learn more about Iowa Taxes
-
Share your state results
Compare Neighboring States
Tax Data by State
Get facts about taxes in your state and around the U.S.
More on Iowa
2026 State Tax Competitiveness Index
The State Tax Competitiveness Index enables policymakers, taxpayers, and business leaders to gauge how their states’ tax systems compare. While there are many ways to show how much state governments collect in taxes, the Index evaluates how well states structure their tax systems and provides a road map for improvement.
122 min read
The State Tax Competitiveness Index Is Your Guide to Economic “Wins Above Replacement”
Taxes are an important part of the mix, and modernizing a state’s tax structure helps position it for growth. States that rank better on the Index have better-structured tax codes, and states with better-structured tax codes get Wins Above Replacement.
5 min read