State Corporate Income Tax Rates and Brackets for 2017

The Tax Foundation, February 27, 2017

State – Hawaii

• Rate    Bracket
• 4.40% > $0
• 5.40% > $25,000
• 6.40% > $100,000

Key Findings

• Forty-four states levy a corporate income tax. Rates range from 3 percent in North Carolina to 12 percent in Iowa.
• Six states — Alaska, Connecticut, Iowa, Minnesota, New Jersey, and Pennsylvania, and the District of Columbia — levy top marginal corporate income tax rates of 9 percent or higher.
• Seven states — Arizona, North Carolina, North Dakota, Colorado, Mississippi, 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. Gross receipts taxes are generally thought to be more economically harmful than corporate income taxes.
• South Dakota and Wyoming are the only states that do not levy a corporate income or gross receipts tax.

Corporate income taxes are levied in 44 states. Though often thought of as a major tax type, corporate income taxes account for just 5.4 percent of state tax collections and 2.7 percent of state general revenue. [1]

Iowa levies the highest top statutory corporate tax rate at 12 percent. Iowa is closely followed by Pennsylvania (9.99 percent) and Minnesota (9.8 percent). Three other states (Alaska, Connecticut, and New Jersey) and the District of Columbia levy rates of 9 percent or higher.

Conversely, North Carolina’s flat rate of 3 percent is the lowest rate in the country, followed by rates in North Dakota (4.31 percent) and Colorado (4.63 percent). Four other states impose rates at or below 5 percent: Arizona at 4.9 percent and Mississippi, South Carolina, and Utah at 5 percent.

Nevada, Ohio, Texas, and Washington forego corporate income taxes but instead impose gross receipts taxes on businesses, which are generally thought to be more economically harmful due to tax pyramiding and nontransparency.[2] Delaware and Virginia impose gross receipts taxes in addition to corporate income taxes. South Dakota and Wyoming levy neither corporate income nor gross receipts taxes.

Twenty-seven 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.[3]

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.

Notable Corporate Income Tax Changes in 2017:

Several states passed corporate income tax rate reductions and other reforms, taking effect in 2016 or 2017. Notable corporate income tax changes for 2017 include:

• North Carolina cut its corporate income tax from 4 percent to 3 percent as the final component of the multiyear phase-in of its comprehensive 2013 tax reform package. North Carolina now has the lowest rate of any state levying a corporate income tax, down from 6.9 percent in 2013.[4]
• Arizona reduced its corporate income tax rate from 5.5 to 4.9 percent.[5]
• New Mexico reduced its corporate income tax rate from 6.6 to 6.2 percent. The rate is scheduled to fall to 5.9 percent in 2018.[6]
• The District of Columbia reduced its corporate income tax rate from 9.2 to 9 percent.[7]
• Indiana will reduce its corporate income tax rate from 6.25 percent to 6 percent on July 1, 2017. The rate will be reduced further to 4.9 percent by 2021.[8]

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PDF: State Corporate Income Tax Rates and Brackets for 2017