Key Findings

• Forty-four states levy a corporate income tax. Rates range from 2.5 percent in North Carolina to 11.5 percent in New Jersey.
• Four states—Alaska, Illinois, Minnesota, and New Jersey—levy top marginal corporate income tax rates of 9 percent or higher.
• Eleven states—Arizona, Colorado, Indiana, Kentucky, Mississippi, Missouri, North Carolina, North Dakota, Oklahoma, South Carolina, and Utah—have top rates at or below 5 percent.
• Nevada, Ohio, Texas, and Washington impose gross receipts taxes instead of corporate income taxes. Delaware, Oregon, and Tennessee impose gross receipts taxes in addition to their corporate income taxes. Some localities in Pennsylvania, Virginia, and West Virginia likewise impose gross receipts taxes, which are generally understood to be more economically harmful than corporate income taxes.
• South Dakota and Wyoming are the only states that levy neither a corporate income nor gross receipts tax.

Corporate income taxes are levied in 44 states. Though often thought of as a major tax type, corporate income taxes accounted for an average of just 7.07 percent of state tax collections and 4.04 percent of state general revenue in fiscal year 2021. And while these figures are not high, they represent a substantial increase over prior years. Corporate income taxes accounted for 2.26 percent of general revenue in FY 2020, which is more in line with historical norms.

New Jersey levies the highest top statutory corporate tax rate at 11.5 percent, followed by Minnesota (9.8 percent) and Illinois (9.50 percent). Alaska and Pennsylvania levy top statutory corporate tax rates of 9.40 percent and 8.99 percent, respectively.

Conversely, North Carolina’s flat rate of 2.5 percent is the lowest in the country, followed by rates in Missouri and Oklahoma (both at 4 percent) and North Dakota (4.31 percent). Seven other states impose top rates at or below 5 percent: Colorado (4.55 percent), Utah (4.85 percent), Arizona and Indiana (4.9 percent), and Kentucky, Mississippi, and South Carolina (5 percent).

Nevada, Ohio, Texas, and Washington forgo corporate income taxes but instead impose gross receipts taxes on businesses, which are generally thought to be more economically harmful due to tax pyramiding, disparate impacts on low-margin businesses, and non-transparency. Delaware, Oregon, and Tennessee impose gross receipts taxes in addition to corporate income taxes, as do several states, like Pennsylvania, Virginia, and West Virginia, which permit gross receipts taxes at the local (but not state) level. South Dakota and Wyoming levy neither corporate income nor gross receipts taxes, and with the enactment of a budget that includes the multiyear phaseout of its corporate income tax, North Carolina is due to join them by 2030.

Twenty-nine states and the District of Columbia have single-rate corporate tax systems. The greater propensity toward single-rate systems for corporate tax than individual income tax is likely because there is no meaningful “ability to pay” concept in corporate taxation. Jeffrey Kwall, professor of law at Loyola University Chicago School of Law, notes that:

Graduated corporate rates are inequitable—that is, the size of a corporation bears no necessary relation to the income levels of the owners. Indeed, low-income corporations may be owned by individuals with high incomes, and high-income corporations may be owned by individuals with low incomes.

A single-rate system minimizes the incentive for firms to engage in economically wasteful tax planning to mitigate the damage of higher marginal tax rates that some states levy as taxable income rises.

Several states implemented corporate income tax rate changes over the past year, among other revisions and reforms. Notable changes for tax year 2023 include:

• Arkansas saw its top rate of 5.9 percent drop to 5.3 percent on January 1, due to the enactment of H.B. 1002 in August of 2022 which accelerated previously planned individual and corporate income tax rate reductions.
• Iowa’s three-bracket corporate income tax was consolidated into a two-bracket tax at the start of the year, with the top rate decreasing from 9.8 to 8.4 percent. This was the result of the state meeting revenue triggers at least four years earlier than initially anticipated.
• New Hampshire’s Business Profits Tax (the state’s version of a corporate income tax) rate was lowered from 7.6 to 7.5 percent beginning in 2023 due to the enactment of HB 1221 in June 2022.
• Due to the enactment of HB 1342 in 2022, Pennsylvania saw a rate reduction from 9.99 percent to 8.99 percent on January 1. The rate will continue to decrease by 0.5 percentage points each year until it reaches 4.99 percent at the beginning of 2031.

Additionally, Idaho’s corporate income tax rate was reduced from 6.5 to 6.0 percent retroactive to January 1, 2022, under H0436, adopted last year.