Corporate Tax Rates by State: Where to Start a Business?

What is corporate tax?

And why should you care?

Here it comes:

Corporate tax rates by state is a highly variable subject.

Some states have no corporate taxes.

Other states tax their companies by up to 12% of their income.

While all Americans face the same federal tax rates, the taxes they pay to their state and local governments depend on where they live.

You can see it all on this groundbreaking map. It shows the corporate tax rates across the US.

We’ve also added the combined states and federal corporate tax rate numbers.

To make the map easier to understand, we colored the states that have low tax rates in blue and green, while the states with higher rates are in yellow and red.

However, a tax rate is not enough to figure out the business climate in a given state. That’s why we picked the states with the lowest corporate tax rates in America and examined them further.

Let’s look at the statistics below. They’ll show us what we need to know about no-tax states and states with low taxes:

Corporate Tax Rate by State: The Most Business-Friendly Places in America 

Corporate tax is the tax that applies to the gross revenue of taxable businesses. These taxes are used in the same manner as the rest – to finance government services, infrastructure, and public works projects. They are an inevitable cost of living in or operating a business in, modern society.

First, we will examine a few states with a corporate tax rate of 0%. How cool is that?

1. Nevada has a corporate tax rate of 0%.

(Source: Tax Foundation)

Even though the state has no corporate taxes, this does not mean that Nevada-based businesses get to pay no taxes. For instance, all businesses that have employees and account for gross wages to the Nevada Employment Security Division (ESD) are subject to the state’s changed business tax (MBT). As of July 2015, Nevada requires a commerce tax on gross revenues.

Nevada corporations must also pay a 5% to 10% sales tax on admissions, food, drink, and merchandise to the state whenever there is live entertainment going on, corp tax rates data shows. However, if the entertainment is quiet and doesn’t attract a lot of attention, venues can enjoy their entertainment tax-free. Venue owners that choose their music with higher energy will be subject to Nevada’s live entertainment tax.

The state likewise relies further on sales tax. Nevada’s 6.85% sales tax rate is bigger than in most states. A large portion of the revenue obtained from sales tax comes from tourists. Sales taxes account for approximately 40% of state and local government revenue. The federal corporate tax rate in Nevada is 21.0%.

2. Ohio has a corporate tax rate of 0%.

(Source: Tax Foundation)

Most corporations and businesses that act in this state must meet the Ohio corporate income tax. The tax applies to a business’s gross taxable income. The amount you pay depends on how much the business has made in a tax year. In fact, the Ohio corporate income tax operates identically to the personal income tax most residents of the state must pay. The data on corporate tax rates by state discovers that, besides the corporate income tax, Ohio requires a commercial activity tax (CAT). Most corporations must pay the CAT, with the exact cost due measured by using gross receipts. The combined state and federal tax rate for corporations in Ohio is 21.0%.

Taking a road trip? In case you get a flat, a new set of tires in Ohio will cost you an extra $1.00 tax per tire. Just a fun fact.

3. South Dakota has a corporate tax rate of 0%.

(Source: Tax Foundation)

Both the state and local governments in South Dakota depend on sales taxes to meet their own financial requirements. While researching the corporate tax rate by state topic, we found out that some 40.5% of the state’s tax revenue comes from sales taxes. With insufficient tax collections, South Dakota has to borrow to meet financial requirements. The state’s debt of $3,828 per person is higher than in most states.

However, all sales of products and services to city or volunteer fire and ambulance officers are free from sales taxes.

The federal corporate tax for South Dakota is at 21.0%, with no combined state/local tax.

4. Washington is one of only a handful of states without corporate income tax.

(Source: Tax Foundation)

Corporate tax is being collected based on the gross taxable income of most businesses and corporations registered or doing business in Washington. It is similar to the state’s personal income tax system. Corporations must register an annual taxable income. They are allowed deductions based on expenses such as wages paid, cost of goods sold, and other qualifying business obligations.

Fun tax fact: Washington requires an annual registration renewal fee of $100 for electrical plug-in car owners. There is no such fee for petrol and diesel vehicles.

Federal corporate tax and combined state tax rate (0%) in Washington is 21.0%.

5. Texas is another one of the states with no corporate tax.

(Source: Tax Foundation)

The local and state governments in Texas are reliant on property and sales taxes. The former brings in around 42.0% of the state and local revenue and the latter accounts for 36.3% of it. The federal corporate tax, together with the combined state tax rate of 0% in Texas is at 21.0%.

With large oil and natural gas deposits, Texas is the largest energy producer in the US. The state collects a 4.6% business tax on oil and a 7.0% tax on natural gas.

There is no tax on clothing in Texas, but belt buckles, the staple of Texas, don’t count as clothing. And so, they are subjected to the state sales tax of 6.25%.

6. Wyoming is one of the best states for business, with a corporate tax rate of 0%.

(Source: Tax Foundation)

Accounting for about 40% of all US coal production, Wyoming is the nation’s largest coal producer. Coal production is not just a blessing for the economy, but likewise to state and local government treasuries. This is why the state can afford to have no corporate tax.

Consumers in Wyoming still get a tax break on specific products. The state raises no taxes on wine or spirits and carries the smallest excise tax on beer of any state.

The federal corporate tax, together with the combined state tax rate in Wyoming is 21.0%.

Corporate Income Tax Rates by State: States With Corporate Taxes under 6%

While not 0%, the corporate tax rate in these states is still relatively low.

7. North Carolina has a corporate tax rate of 3.0%.

(Source: Tax Foundation)

Formerly recognized for its tobacco and textile industries, North Carolina has grown to introduce a diversity of business sectors. They include biotechnology, energy companies, and furniture empires. North Carolina can boast with having the largest textile mill industry in the country.

Fun fact: In North Carolina, citizens are expected to register their pets as personal property and meet a pet fee. Dogs or cats aged four months or older will cost you $10 if fixed, $75 if not.

The federal corporate and combined state tax rate in North Carolina is 23.4%

8. North Dakota has one of the lowest corporate tax rates by state, at 4.3%.

(Source: Tax Foundation)

North Dakota has a business income tax, but no franchise or privilege tax relevant to corporations. Thus, unless your business is a traditional corporation, it will not be subject to a state tax on income or net worth. However, if revenue from your business goes through to you personally, that income will be subject to tax on your personal state tax interest.

Federal and combined state corporate tax in North Dakota is 24.4%, according to the latest corporate tax rate by state data.

North Dakota also has a tax levy of 5% on selling and licensing performing rights for music or dramatic-musical compositions.

9. Colorado has a corporate tax rate of 4.6%.

(Source: Tax Foundation)

Colorado has a corporate income tax of 4.6% and an alternative tax on gross receipts. However,  just like North Dakota, Colorado does not have any franchise or privilege taxes relevant to corporations. Thus, unless your business is a traditional corporation, the business itself will owe no state tax. This makes Colorado one of the most business-friendly states.

Keep in mind that if revenue from your corporations goes through to you personally, the income will be subject to tax on your personal state tax interest.

As for other taxes, Colorado has a 2.9%  tax for all “nonessential packaging”. This means straws, stir sticks, cup sleeves, and lids will cost slightly more than in the rest of the US. For example, your coffee cup is essential, sure, but the lid that goes on it is not.

The federal and combined state corporate tax rate in Colorado is 24.7%.

10. Arizona has a corporate tax rate of 4.9%.

(Source: Tax Foundation)

Arizona holds the 10th spot on our list of states with the lowest corporate taxes. It is also the last state with corporate taxes that are below 5%.

Arizona excludes prescription drugs and food for home consumption from state sales taxes. The combined federal and state/local corporate tax rate is 24.9%.

While gas is cheap and taxed fairly, car owners must pay an annual vehicle license tax. The rate is based on an expected cost of 60% of the car’s base retail value. It is reduced by 16.25% for each year since the vehicle was first registered in Arizona. The tax rate is $2.80 for new vehicles and $2.89 for used vehicles, for each $100 of the estimated value.

11. Utah has a corporate tax rate of 5%.

(Source: Tax Foundation)

Corporate income tax rates by state stats show that sales tax in Utah is collected on the retail sale of taxable tangible personal property and certain services. Those services include charges for labor to repair tangible personal property. As a Streamlined Sales Tax state, Utah promotes out-of-state corporations without a sales tax necessity to register with the state. The average federal and combined state corporate tax rate is 25.0%.

Fun Utah tax fact: There is a 10% tax on fees charged by businesses that have nude or partially nude workers. For example, strip clubs. The tax also applies to food and drink sold by that establishment.

12. The current corporate tax rate in South Carolina is 5%.

(Source: Tax Foundation)

State and local governments in South Carolina raise an average of $3,425 in tax payments per person during a year. Taking this number into consideration, South Carolinians pay less in taxes than citizens of all but 8 other states. Many taxpayers, however, will find themselves in the highest income bracket. The 7% top rate kicks in at just $14,600 of taxable income, and the sales tax is at an average of 7.46%. The combined federal and state/local corporate tax rate is 25.0%, according to the tax burden by state numbers.

Hunters in South Carolina that have a license or permit could get a $50  tax credit per carcass they donate to charity. Same goes for businesses operating as a meatpacker, butcher, or a processing plant. As for artists and crafters, they are taxed multiple times in South Carolina. First, they must get a retail license for $20 to sell their products at shows. Then they must charge and collect 6% state sales and use tax. That goes for any relevant local sales too – they should use tax, for every sale they make.

13. Mississippi has a corporate tax of 5%.

(Source: Tax Foundation)

Corporate tax by state figures place Mississippi on the 13th spot on our list. The average federal corporate and combined state tax rate in Mississippi is 25.0%. Due to the lack of substantial income tax revenue, Mississippi relies heavily on sales tax. The state’s 7.0% sales tax value is the second-biggest in the US. Sales taxes account for 31.2% of the state’s overall revenue, quite above the 23.5% average, according to the figures related to the highest corporate tax rate by state. Mississippi has one of the lowest property taxes, on the other hand.

When it comes to fun and weird tax-related facts, there is a 3% severance tax on all salt produced from land or water in Mississippi.

14. Florida has a corporate tax rate of 5.5%.

(Source: Tax Foundation)

Florida residents pay no personal income tax, which carries over to the overall state and local tax burden, making other taxes average, or even above-average compared to the rest of the US, facts on corporate taxes by state underline. Property taxes, for example, are right around the national average; in Florida, for a $400,000 home, the average annual property tax is about $4,166.

Florida has a “greenbelt law” that taxes farmers and ranchers at a smaller tax rate. Many property developers started renting cows while preparing their land for building in order to avoid one of the highest corporate tax rates by state.

The average federal corporate and combined state tax rate in Florida is 25.3%.

15. New Mexico has a corporate tax rate of 5.9%.

(Source: Tax Foundation)

Sales taxes in New Mexico lean high and hit more transactions than in most other states. Property taxes are pretty modest, Nasdaq finds. Personal income tax rates top out at 4.9% on taxable revenue over $16,000 for individual filers and over $24,000 for married couples entering together. The average federal corporate and combined state tax rate in New Mexico is 25.7%, making it the highest taxed state that still has a corporate tax rate lower than 6%.

New Mexico has a 0.5% tax advance to any game that relies on chance rather than technique, including bingo and similar games. People who are nearing the age of 100 now have something to look forward to in New Mexico: anyone who is 100 years old, or older, is free from income tax, if not declared as a dependent.

Corporate Income Tax by State: 6 States With a Corporate Tax Rate of 6%

These states shape our list of lowest corporate tax rates in the US.

16. Michigan has a corporate tax rate of 6%.

(Source: Tax Foundation)

Michigan is one of just a handful of US states with a low personal income tax, at just 4.25%. But cities can levy income taxes as well – in Detroit, for example, there’s an additional tax of 2.4%. The average federal corporate and combined state tax rate for Michigan is 25.7%.

Michigan also receives a 6%  value tax on medical services maintained by Medicaid Health Maintenance Organizations (HMOs) and Prepaid Inpatient Health Plans (PIHPs).

17. Oklahoma has a corporate tax rate of 6%.

(Source: Tax Foundation)

Oklahoma has one of the lowest effective corporate tax rates by state. Personal taxes are similar – per person state and local taxes in Oklahoma average at just $3,697, approximately $1,200 lower than the US average. State and local governments depend heavily on excise and other taxes apart from profit or property tax. The average federal corporate and combined state tax rate for Oklahoma is 25.7%.

Many Americans are used to paying property taxes. However, if you live in Oklahoma, you don’t just pay tax on your land, but on all tangible personal property.

18. Kentucky has a corporate tax rate of 6%.

(Source: Tax Foundation)

Corporate income tax rates by state place Kentucky near the end of our list. Let’s see what other interesting tax information we can find about this state:

The state has removed deductions for health insurance premiums, long-term care insurance coverage, and medical expenses. Kentucky has also recently redefined its sales taxes; further components are now subjected to the state’s 6% sales tax. They include club fees, pet care services, and landscaping services. In 2010, Kentucky introduced a 6% sales tax on all stud fees to support awards to breeders based on their foals’ performances in races, shows or contests. However, Kentucky prevents districts from adding to that sales tax, and the property tax burden is considered moderate.

Business tax rates by state show that the average federal corporate and combined state tax rate for Kentucky is 25.7%.

19. Indiana has a corporate tax rate of 6%.

(Source: Tax Foundation)

Indiana dropped its already low tax slightly in 2017, from 3.3% to 3.23%. Many counties in Indiana still demand additional income taxes, with an average fee of 1.56%. The average federal corporate and combined state tax rate for Indiana is 25.7%, business taxes by state numbers show.

Fun tax fact: this state also levies a “candy tax” on marshmallows. Marshmallow cream, however, is tax-free, as it is not officially recognized as a candy.

20. Georgia has a corporate tax rate of 6%.

(Source: Tax Foundation)

Georgia’s personal income tax brackets are organized in a way that most taxpayers will pay the top marginal rate. It kicks in at just $10,000 of taxable income for married couples filing jointly, or $7,000 for individual filers. Property taxes are modest and more favorable, according to the latest data on best states for taxes. The average federal corporate and combined state tax rate for Georgia is 25.7%.

Those visiting Georgia can expect to pay a $5-per-night fee on each calendar night they stay in a hotel room. That is, unless they rent for 31 or more consecutive days. After 31 days the rental develops into an “extended stay rental” and is not subject to this tax.

21. Virginia has a corporate tax rate of 6%.

(Source: Tax Foundation)

Virginia has reasonable personal income taxes and relatively low property taxes. Note that groceries are being taxed, albeit at a lower rate. The average federal corporate and combined state tax rate for Virginia is 25.7%.

Virginia taxes every lamb and sheep that are being sold in its state. The tax is small but will cost you $0.50 per lamb or sheep, sold in the state.

In Conclusion

Six states have no corporate income tax at all. Even though, of those, Ohio, Texas and Washington provide gross receipts taxes, or a tax on overall gross business earnings, instead. From this viewpoint, business holders residing in Nevada, South Dakota and Wyoming may go off easiest, having to settle neither kind of tax.

But, before you pull up risks and chances to bring in a going corporation to one of these states acknowledge other components. Sales, excise, and property taxes; affordability, and the impact of smaller taxes on a state’s skill to spend in infrastructure, education, healthcare, and other significant services tip the scales too.

Our corporate tax rate by state show that the US is big and taxes lurk around every corner! Stay safe and informed. Till next time!