State Corporate Tax Rates

February 13, 2020

The majority of the states in these United States have a corporate income tax which they levy on their in-state businesses. These corporate income taxes contribute toward the general fund of states and help further numerous state projects. Some states have a flat corporate tax rate, but most have a graduated corporate income tax which mirrors the federal system. In most cases, corporate income tax rates at the state level do not exceed 10%.

Why Keep Rates Low?

One reason for this is that corporations are also liable for taxes at the federal level. States have to keep state corporate tax rates relatively low, otherwise in-state corporations would become overwhelmed by taxes. And states are also aware that overly high state corporate income tax rates can literally drive businesses elsewhere. It’s not uncommon for corporations to seek out states with low corporate taxes when they incorporate. 

Lowest State Corporate Tax Rates

In this post, we will look at a few states which have among the lowest corporate income tax rates in the U.S. These states could accurately be described as “business friendly.” If you’re an aspiring entrepreneur and you think you’ll be successful, you may want to consider selecting one of these states to incorporate. Seeing large chunks of your revenue lost to the state is never a pretty sight. Plus, as we know at MCC, it’s all too easy to become saddled with tax debt problems. Corporations regularly fall into trouble at the state level with delinquent state corporate income taxes. To put yourself in a better situation, you may want to consider one of these states. 

No State Corporate Income Tax 

As of right now, there are 2 states which have no corporate income tax of any kind. These 2 states are South Dakota and Wyoming. It’s fitting that these 2 states are without a corporate income tax. Both are predominantly Republican, both relatively depopulated, and both have a reputation for rugged American self-determination. If avoiding state corporate taxation is at the top of your agenda, then these states are your best options.  

Nevada, Ohio, Texas and Washington do not have a corporate income tax, but instead have a “gross receipts tax.” The gross receipts tax is somewhat different from the corporate income tax. Gross receipts taxes are similar to corporate income taxes, but are shaped and crafted by the specific needs and demands of a given state. For instance, Nevada’s receipts tax, referred to as its “commerce tax,” imposes a tax on gross revenues above $4 million. The commerce tax rate differs according to entity, but there are no deductions allowed to offset the income. This is distinct from corporate income tax standards. 

States with Relatively Low State Corporate Tax Rates 

At present, 44 states impose a corporate income tax. The structure and rates of these corporate income taxes vary widely. Some states have corporate income tax rates around or above 10%! Those states would be classified at the high end. The following states, on the other hand, have top marginal corporate income tax rates in the 2-6% range. 

  • Arizona (4.9%) 
  • Colorado (4.63%) 
  • Utah (4.95%) 
  • Florida (5.5%) 
  • North Carolina (2.5%) 
  • Kentucky (5%) 
  • Mississippi (3-5%) 
  • South Carolina (5%) 

The Take Aways

A few things to take away. Currently, North Carolina has the lowest tax rate at 2.5%, and this is imposed flatly across all corporate income levels. Most of these states which have relatively low corporate tax rates impose them on a flat basis. On the whole, we could describe all of these states are being relatively business friendly. These rates are not overly burdensome, and corporations with experienced CPAs should be able to put themselves in a just position.  

Avoid Iowa at All Costs 

Currently, Iowa has the highest corporate income tax rate at 12%. When you view this in conjunction with the federal corporate income tax, we can see how doing business in Iowa can be very expensive. Of course, Iowa corporations can look for ways to minimize their tax burden, but the rates they face will still add up. An Iowa company which does well can end up paying a very substantial portion of its income toward taxes. 

Call Us For Help

States have to make ends meet, just like anyone else. And corporate income taxes are one way that states may this happen. Here at Mackay, Caswell & Callahan, P.C., we’re familiar with state taxation in all of its various forms. Here in the great State of New York, we have all kinds of state taxation. We’ve helped our clients navigate through the minefield of New York State taxation time and time again. Corporations, like individuals, can fall into trouble when it comes to meeting their state tax obligations. If you do fall into trouble, navigating through things solo is usually not the best choice. An experienced tax attorney can help you resolve your tax issues and get back on track financially. If you have a tax debt issue, give one of our top New York City tax attorneys a call today. 

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