44 states have a corporate income tax with rates from 2.5% in North Carolina to 11.5% in New Jersey. 4 states (Alaska, Illinois, Minnesota, New Jersey) have top rates over 9%. 11 states (Arizona, Colorado, Indiana, Kentucky, Mississippi, Missouri, North Carolina, North Dakota, Oklahoma, South Carolina, Utah) have top rates below 5%.
Nevada, Ohio, Texas, Washington impose gross receipts taxes instead of corporate income tax. Delaware, Oregon, Tennessee impose both. Some PA, VA, and WV localities also impose gross receipts taxes. Only South Dakota & Wyoming don’t have a corporate tax or gross receipts tax.
Modifications on state corporate taxes
44 states have corporate income taxes. 7.07% of state tax collections, 4.04% of state gen. rev. in FY21 (up from 2.26% in FY20). Historical norms around 2.26%. NJ has highest corporate tax rate at 11.5%, followed by MN (9.8%), IL (9.5%). AK and PA have 9.4% and 8.99% respectively. NC has lowest corporate tax rate of 2.5%, followed by MO and OK (4%) and ND (4.31%). CO, UT, AZ, IN (4.9%), KY, MS, SC (5%) also have low rates. NV, OH, TX, WA forgo corporate income tax for harmful gross receipts tax. DE, OR, TN impose both. PA, VA, WV allow local gross receipts tax. SD, WHY don’t impose corporate or gross receipts tax. NC to join by 2030 after phasing out corporate tax.
Single-rate limits
Single-rate limits wasteful tax planning in response to high marginal tax rates.Several states have changed corporate income tax rates and made other revisions/reforms in the past year. Key changes for 2023 tax year include:
- Arkansas reduced its top tax rate from 5.9% to 5.3% on Jan 1 due to H.B. 1002, enacted in Aug 2022, speeding up planned reductions for individual & corporate income taxes.
- Iowa consolidated its 3-bracket corporate tax to 2-brackets, reducing the top rate from 9.8% to 8.4% due to meeting revenue triggers ahead of schedule.
- New Hampshire reduced its Business Profits Tax (state’s corporate tax) from 7.6% to 7.5% starting 2023 due to HB 1221 enacted in June 2022.
- HB 1342 caused Pennsylvania to reduce its rate from 9.99% to 8.99% on Jan 1, 2023. It will decrease 0.5% annually till 2031 reaching 4.99%.
Idaho reduced its corporate tax rate from 6.5% to 6.0% retroactive to Jan 1, 2022 through H0436 adopted in the previous year.