Ranking State Tax Systems: Corporate Taxes

November 22, 2022 11:50 am Published by Comments Off on Ranking State Tax Systems: Corporate Taxes

Our 2023 State Business Tax Climate Index, released in October, considers five main tax categories: corporate taxes, individual income taxes, sales and excise taxes, property and wealth taxes, and unemployment insurance taxes. Today, we take a closer look at states’ rankings on the corporate tax component, which accounts for 21.1 percent of each state’s overall rank.

The corporate tax component of our State Business Tax Climate 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.

All corporate income taxes fall on capital investment, but the structure should not make matters worse, and policymakers should take care not to distort investment decisions through the use of targeted incentives for select firms or activities instead of a lower rate for all businesses. The Index rewards neutrality while penalizing states with alternative minimum taxes, heavy reliance on incentives, and provisions leading to double taxation.

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.

How does your state rank on corporate taxes Compare state corporate tax component on the 2023 State Business Tax Climate Index. Explore 2023 state corporate tax rank by state and year

Corporate Tax Component of the State Business Tax Climate Index (2020-2023)
State2020 Rank2021 Rank2022 Rank2023 RankChange from 2022 to 2023
Alabama23231718-1
Alaska25252728-1
Arizona212223230
Arkansas333329290
California272746460
Colorado7967-1
Connecticut26262627-1
Delaware505050500
Florida96710-3
Georgia67880
Hawaii171919190
Idaho282828262
Illinois353538380
Indiana111211110
Iowa48463334-1
Kansas343021210
Kentucky131515150
Louisiana363434322
Maine373635350
Maryland31323233-1
Massachusetts383736360
Michigan182020200
Minnesota454343430
Mississippi101313130
Missouri33330
Montana202122220
Nebraska303131301
Nevada242425250
New Hampshire424444440
New Jersey494848480
New Mexico221112120
New York141624240
North Carolina4445-1
North Dakota198990
Ohio414039390
Oklahoma8101046
Oregon324949490
Pennsylvania444242420
Rhode Island403940400
South Carolina5556-1
South Dakota11110
Tennessee474545450
Texas464747470
Utah121414140
Vermont434141410
Virginia15171617-1
Washington393837370
West Virginia161818162
Wisconsin29293031-1
Wyoming11110
District of Columbia27272829-1

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.


Categorised in:

This post was written by prismatax

Comments are closed here.