The Tax Foundation

March 18, 2008

New Tax Foundation Study Shows Half of U.S. States Tax Businesses More Heavily than Any Other Nation Does

by TF Staff

A new Tax Foundation Fiscal Fact shows that nearly half of U.S. states tax job providers at a higher rate than any other country in the developed world. Counting the federal rate alone, the U.S. has the world's highest corporate tax rate, but including average sub-national rates (federal plus state in the U.S.), Japan edges out the U.S. for the highest-tax location.

This study breaks the tax down by state, adding each state's corporate tax rate to the federal corporate tax rate. The results show that 25 states impose, when combined with the federal rate, a higher corporate tax rate than in any other nation. In fact:

According to Tax Foundation president Scott Hodge, the study's author:

This is startling news for America's businesses and workers. Tax competition for jobs and investment is fierce, and the U.S. continues to fall further and further behind. Our states should be the world's leaders in many things, but high taxation should not be one of them. The high federal corporate tax rate is literally crushing states' competitive abilities. That means fewer jobs for American workers.

If federal lawmakers are serious about making the U.S. corporate tax system more competitive globally, they will have to partner with state officials to lower the nation's overall corporate tax burden. Likewise, state officials should have a vested interest in cutting the federal corporate tax rate because there is only so much they can do to improve their own competitiveness. After all, even corporations in the three states that do not impose a major state-level corporate tax—Nevada, South Dakota, and Wyoming—still shoulder a higher corporate tax rate than France, and 25 other major countries, because of the 35 percent federal corporate rate.

The table below lists each state's combined corporate tax rate and then compares them (bolded) with the rates of our major trading partners and competitors.

Comparing U.S. State Corporate Taxes to the OECD, 2007


OECD Overall Rank

Country/State

Federal Rate Adjusted

Top State Corporate Tax Rate

Combined Federal and State Rate (Adjusted) (a)

 

Iowa

35

12

41.6

 

Pennsylvania

35

9.99

41.5

 

Minnesota

35

9.8

41.4

 

Massachusetts

35

9.5

41.2

 

Alaska

35

9.4

41.1

 

New Jersey

35

9.36

41.1

 

Rhode Island

35

9

40.9

 

West Virginia

35

9

40.9

 

Maine

35

8.93

40.8

 

Vermont

35

8.9

40.8

 

California

35

8.84

40.7

 

Delaware

35

8.7

40.7

 

Indiana

35

8.5

40.5

 

New Hampshire

35

8.5

40.5

 

Wisconsin

35

7.9

40.1

 

Nebraska

35

7.81

40.1

 

Idaho

35

7.6

39.9

 

New Mexico

35

7.6

39.9

 

Connecticut

35

7.5

39.9

 

New York

35

7.5

39.9

 

Kansas

35

7.35

39.8

 

Illinois

35

7.3

39.7

 

Maryland

35

7

39.6

 

North Dakota

35

7

39.6

1

Japan

30

11.56

39.54

 

Arizona

35

6.968

39.5

 

North Carolina

35

6.9

39.5

 

Montana

35

6.75

39.4

 

Oregon

35

6.6

39.3

2

United States

35

6.57

39.27

 

Arkansas

35

6.5

39.2

 

Tennessee

35

6.5

39.2

 

*Washington

35

6.4

39.2

 

Hawaii

35

6.4

39.2

3

Germany

26.38

17.0

38.9

 

*Michigan

35

6

38.9

 

Georgia

35

6

38.9

 

Kentucky

35

6

38.9

 

Oklahoma

35

6

38.9

 

Virginia

35

6

38.9

 

Florida

35

5.5

38.6

 Louisiana 35 8 38.5
 Missouri 35 6.25 38.4

 

Ohio

35

5.1

38.3

 

Mississippi

35

5

38.3

 

South Carolina

35

5

38.3

 

Utah

35

5

38.3

 

Colorado

35

4.63

38.0

 Alabama 35 6.5 37.8

4

Canada

22.1

14

36.1

 

*Texas

35

1.6

36.0

 

Nevada

35

0

35.0

 

South Dakota

35

0

35.0

 

Wyoming

35

0

35.0

5

France

34.43

0

34.4

6

Belgium

33.99

0

33.99

7

Italy

33

0

33

8

New Zealand

33

0

33

9

Spain

32.5

0

32.5

10

Luxembourg

22.88

7.5

30.38

11

Australia

30

0

30

12

United Kingdom

30

0

30

13

Mexico

28

0

28

14

Norway

28

0

28

15

Sweden

28

0

28

16

Korea

25

2.5

27.5

17

Portugal

25

1.5

26.5

18

Finland

26

0

26

19

Netherlands

25.5

0

25.5

20

Austria

25

0

25

21

Denmark

25

0

25

22

Greece

25

0

25

23

Czech Republic

24

0

24

24

Switzerland

8.50

14.64

21.32

25

Hungary

20

0

20

26

Turkey

20

0

20

27

Poland

19

0

19

28

Slovak Republic

19

0

19

29

Iceland

18

0

18

30

Ireland

12.5

0

12.5

*Michigan, Texas and Washington have gross receipts taxes rather than traditional corporate income taxes. For comparison purposes, we converted the gross receipts taxes into an effective CIT rate. See footnote 2 for methodology.

(a) Combined rate adjusted for federal deduction of state taxes paid

Source: OECD, http://www.oecd.org/dataoecd/26/56/33717459.xls


Read the full study. Read the news release.

More Tax Foundation data on corporate taxes:

National-Level Statutory Corporate Tax Rates, 2007

Federal Corporate Income Tax Rates, Income Years 1909-2007

State and Local Corporate Income Tax Collections Per Household, Fiscal Year 2005

State Business Tax Climate Index Rankings, 2003-2008