Ranking State Tax Systems: Corporate Taxes

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.

Corporate Tax Component of the State Business Tax Climate Index (2020-2023)
State 2020 Rank 2021 Rank 2022 Rank 2023 Rank Change from 2022 to 2023
Alabama 23 23 17 18 -1
Alaska 25 25 27 28 -1
Arizona 21 22 23 23 0
Arkansas 33 33 29 29 0
California 27 27 46 46 0
Colorado 7 9 6 7 -1
Connecticut 26 26 26 27 -1
Delaware 50 50 50 50 0
Florida 9 6 7 10 -3
Georgia 6 7 8 8 0
Hawaii 17 19 19 19 0
Idaho 28 28 28 26 2
Illinois 35 35 38 38 0
Indiana 11 12 11 11 0
Iowa 48 46 33 34 -1
Kansas 34 30 21 21 0
Kentucky 13 15 15 15 0
Louisiana 36 34 34 32 2
Maine 37 36 35 35 0
Maryland 31 32 32 33 -1
Massachusetts 38 37 36 36 0
Michigan 18 20 20 20 0
Minnesota 45 43 43 43 0
Mississippi 10 13 13 13 0
Missouri 3 3 3 3 0
Montana 20 21 22 22 0
Nebraska 30 31 31 30 1
Nevada 24 24 25 25 0
New Hampshire 42 44 44 44 0
New Jersey 49 48 48 48 0
New Mexico 22 11 12 12 0
New York 14 16 24 24 0
North Carolina 4 4 4 5 -1
North Dakota 19 8 9 9 0
Ohio 41 40 39 39 0
Oklahoma 8 10 10 4 6
Oregon 32 49 49 49 0
Pennsylvania 44 42 42 42 0
Rhode Island 40 39 40 40 0
South Carolina 5 5 5 6 -1
South Dakota 1 1 1 1 0
Tennessee 47 45 45 45 0
Texas 46 47 47 47 0
Utah 12 14 14 14 0
Vermont 43 41 41 41 0
Virginia 15 17 16 17 -1
Washington 39 38 37 37 0
West Virginia 16 18 18 16 2
Wisconsin 29 29 30 31 -1
Wyoming 1 1 1 1 0
District of Columbia 27 27 28 29 -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.

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