Corporate Tax

State corporate tax charges and lessons for 2020

Main results

  • Forty-four states have corporate taxes. Rates range from 2.5 percent in North Carolina to 12 percent in Iowa.
  • Six states – Alaska, Illinois, Iowa, Minnesota, New Jersey, and Pennsylvania – have top corporate tax rates of 9 percent or more.
  • Ten states – Arizona, Colorado, Florida, Kentucky, Mississippi, Missouri, North Carolina, North Dakota, South Carolina, and Utah – have peak rates of 5 percent or less.
  • Nevada, Ohio, Texas, and Washington all levy gross income taxes instead of corporate taxes. Gross income taxes are generally considered to be more economically damaging than corporate taxes.
  • South Dakota and Wyoming are the only states that do not levy corporate or gross income taxes.

Corporate income taxes are levied in 44 countries. Although often viewed as the main type of tax, corporate taxes averaged only 4.73 percent of government tax revenue and 2.27 percent of general government revenue.[1]

Iowa has the highest statutory corporate tax rate at 12 percent.[2] followed by New Jersey (10.5 percent), Pennsylvania (9.99 percent) and Minnesota (9.8 percent). Two other states (Alaska and Illinois) have tax rates of 9 percent or more.

Conversely, North Carolina’s flat rate is the lowest in the country at 2.5 percent, followed by the rates in Missouri (4 percent) and North Dakota (4.31 percent). Seven other states set maximum rates of 5 percent or less: Florida (4.458 percent), Colorado (4.63 percent), Arizona (4.9 percent), Utah (4.95 percent), and Kentucky, Mississippi, and South Carolina (5th Percent).

Nevada, Ohio, Texas, and Washington waive corporate taxes, but levy gross income taxes on businesses that are generally viewed as more economically damaging due to tax pyramids and non-transparency.[3] Delaware and Oregon collect gross income taxes in addition to corporate taxes, as do some states like Pennsylvania, Virginia, and West Virginia that allow gross income taxes at the local (but not state) level. South Dakota and Wyoming do not have corporate or gross income taxes.

30 states and the District of Columbia have a unified corporate tax system. The tendency toward uniform corporate tax systems than individual income tax is likely because there is no meaningful concept of solvency in corporate tax. Jeffrey Kwall, Professor of Law at Loyola University’s Chicago School of Law, notes that:

Graduated corporate rates are unfair – that is, the size of a company is not necessarily related to the income level of the owners. Indeed, low-income businesses can be owned by high-income individuals and high-income businesses can be owned by low-income individuals.[4]

A single tax rate system minimizes the incentive for businesses to engage in wasteful tax planning to mitigate the harm of higher marginal tax rates that some states impose as taxable income increases.

Notable changes in corporate tax in 2020

Several states made changes to the corporate tax rate in the past year. Notable changes for 2020 include:

  • Florida’s corporate tax rates should revert to the 2018 tax rate of 5.5 percent, but a law has been passed to extend the 2019 tax rate from 4.458 percent to 2020 and 2021.[5]
  • As part of a tax cut package for 2018 following the federal reform, Georgia cut its highest corporate tax rate from 6 percent to 5.75 percent and doubled the standard deduction.[6] A further reduction to 5.5 percent is planned for 2020, pending legal approval.
  • Indiana’s rate dropped to 5.5 percent on July 1, 2019, and a further decrease to 5.25 percent is planned for July 1, 2020.[7]
  • Mississippi continued its 3 percent corporate tax bracket by releasing the first $ 3,000 of income that year. The 4 and 5 percent brackets remain.[8]
  • Missouri cut its corporate tax rate from 6.25 percent to 4 percent, and paid off that decline by no longer allowing companies to choose the apportionment formula that worked best for them.[9]
  • The New Jersey temporary surcharge decreased from 2.5 percent to 1.5 percent, raising the state maximum rate to 10.5 percent instead of 11.5 percent.

Combined state and federal corporate tax rates in 2020

State corporate tax rates as of January 1, 2020

Status Prices Brackets
Ala. 6.5% > $ 0
Alaska 0.0% > $ 0
2.0% > $ 25,000
3.0% > $ 49,000
4.0% > $ 74,000
5.0% > $ 99,000
6.0% > $ 124,000
7.0% > $ 148,000
8.0% > $ 173,000
9.0% > $ 198,000
9.4% > $ 222,000
Ariz. 4.9% > $ 0
Ark. 1.0% > $ 0
2.0% > $ 3,000
3.0% > $ 6,000
5.0% > $ 11,000
6.0% > $ 25,000
6.5% > $ 100,000
Calif. 8.84% > $ 0
Colo. 4.63% > $ 0
Conn. 7.5% > $ 0
Of) 8.7% > $ 0
Fla. 4.458% > $ 0
Ga. (C) 5.75% > $ 0
Hawaii 4.4% > $ 0
5.4% > $ 25,000
6.4% > $ 100,000
Idaho 6.925% > $ 0
Fig. (D) 9.5% > $ 0
In the) 5.50% > $ 0
Iowa 6% > $ 0
8th% > $ 25,000
10% > $ 100,000
12% > $ 250,000
Opportunity. 4% > $ 0
7% > $ 50,000
Ky. 5% > $ 0
The. 4% > $ 0
5% > $ 25,000
6% > $ 50,000
7% > $ 100,000
8th% > $ 200,000
Maine 3.50% > $ 0
7.93% > $ 350,000
8.33% > $ 1,050,000
8.93% > $ 3,500,000
Md. 8.25% > $ 0
Dimensions. 8th% > $ 0
Me. 6% > $ 0
Minn. 9.8% > $ 0
Young lady. (F) 3% > $ 3,000
4% > $ 5,000
5% > $ 10,000
Mon 4.00% > $ 0
Mont. 6.75% > $ 0
Nebr. 5.58% > $ 0
7.81% > $ 100,000
Nev. (on)
NH (g) 7.7% > $ 0
NJ (h) 6.5% > $ 0
7.5% > $ 50,000
9.0% > $ 100,000
10.5% > $ 1,000,000
NM 4.8% > $ 0
5.9% > $ 500,000
NY 6.5% > $ 0
NC 2.5% > $ 0
ND 1.41% > $ 0
3.55% > $ 25,000
4.31% > $ 50,000
Ohio (on)
Okla. 6% > $ 0
Hours (to) 6.6% > $ 0
7.6% > $ 1,000,000
Good. 9.99% > $ 0
RI 7% > $ 0
SC 5% > $ 0
SD None
Tenn. 6.5% > $ 0
Tex. (on)
Utah 4.95% > $ 0
Vt. 6.0% > $ 0
7.0% > $ 10,000
8.5% > $ 25,000
Go. (to) 6% > $ 0
To wash. (on)
W.Va. 6.5% > $ 0
Wis. 7.9% > $ 0
Wyo. None
DC 8.25% > $ 0
(a) Nevada, Ohio, Texas, and Washington have no corporation tax but do have gross income tax at rates that are not strictly comparable to corporate tax rates. See Table 18 for more information. Delaware and Oregon have gross income taxes in addition to corporate taxes, as do some states such as Pennsylvania, Virginia, and West Virginia that allow gross income taxes at the local (but not state) level.
(b) Florida corporate tax rate will revert to 5.5% for tax years beginning on or after January 1, 2022.
(c) Georgia’s corporate tax rate will decrease to 6% on January 1, 2026. By 2020, the state could see a drop to 5.5% by the time legislation is approved.
(d) The Illinois rate includes two separate corporate taxes, one at a rate of 7% and one at a rate of 2.5%.
(e) Indiana rate will change to 5.25% on July 1, 2020. The rate is expected to drop to 4.9% by 2022.
(f) Mississippi continues the 3 percent margin by increasing the exemption by $ 1,000 per year. This year the exemption is $ 3,000. The 3 percent bracket will be completely eliminated by early 2022.
(g) The New Hampshire tax rate is 7.9% for tax periods ending prior to December 31, 2019.
(h) In New Jersey, the rates shown apply to a company’s total net income, not just to income above the threshold. A temporary surcharge applies that increases the rate to 10.5 percent for businesses with incomes greater than $ 1 million.
Note: In addition to regular income taxes, many states impose other taxes on businesses such as gross income taxes and franchise taxes. Some states also impose an alternative minimum tax and special rates for financial institutions
Source: Tax Foundation; state tax laws, forms and instructions; Bloomberg Tax
[1] US Census Bureau, “2017 State and Local Government Historical Records and Tables,” https://www.census.gov/data/datasets/2017/econ/local/public-use-datasets.html.

[2] Although Iowa has the highest corporation tax in the nation, its rates are not directly comparable to other states because the state provides a deduction for federal taxes paid.

[3] Justin Ross, “Gross Income Taxes: Theory and Current Insights,” Tax Foundation, October 6, 2016, https://taxfoundation.org/gross-receipts-taxes-theory-and-recent-evidence/.

[4] Jeffrey L. Kwall, “The Abolition of Graduated Corporate Income Taxes,” Tax Notes, June 27, 2011, 1395.

[5] Katherine Loughead, “Government Tax Changes Effective January 1, 2020,” December 20, 2019, https://taxfoundation.org/2020-state-tax-changes-january-1/.

[6] Katherine Loughead, “Five States Are Implementing Significant Tax Reform Under the Tax Cut and Employment Act,” Tax Foundation, July 23, 2018, https://taxfoundation.org/five-states-accomplish-meaningful-tax-reform- Wake- Tax cuts-Jobs-Act /.

[7] Scott Drenkard, “The Indiana Tax Package for 2014 Continues the State’s Pattern of Last Year Improvements,” Tax Foundation, April 7, 2014, https://taxfoundation.org/indiana-s-2014-tax-package-continues -state -s-pattern improvements from last year /.

[8] Joseph Bishop-Henchman, “Mississippi Approves Franchise Tax Cut, Income Tax Cut,” Tax Foundation, May 16, 2016, https://taxfoundation.org/mississippi-approves-franchise-tax-phasedown-income-tax-cut/.

[9] Katherine Loughead, “State Tax Changes Effective January 1, 2020.”

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