![]() ![]() The greater propensity toward single-rate systems for corporate tax than individual income tax An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. Thirty-four states and the District of Columbia have single-rate corporate tax systems. South Dakota and Wyoming levy neither corporate income nor gross receipts taxes. Delaware imposes 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. Gross receipts taxes are a prime example of tax pyramiding in action.Īnd nontransparency. This yields vastly different effective tax rates depending on the length of the supply chain and disproportionately harms low-margin firms. Nevada, Ohio, Texas, and Washington forgo corporate income taxes but instead impose gross receipts taxes on businesses, generally thought to be more economically harmful due to tax pyramiding Tax pyramiding occurs when the same final good or service is taxed multiple times along the production process. Four other states impose rates at or below 5 percent: Arizona (4.9 percent), Utah (4.95 percent), and Kentucky, Mississippi, and South Carolina (5 percent). Two other states (Alaska and Illinois) levy rates of 9 percent or higher.Ĭonversely, North Carolina’s flat rate of 2.5 percent is the lowest in the country, followed by rates in North Dakota (4.31 percent) and Colorado (4.63 percent). Iowa levies the highest top statutory corporate tax rate at 12 percent, followed by New Jersey (11.5 percent), Pennsylvania (9.99 percent), and Minnesota (9.8 percent). Though often thought of as a major tax type, corporate income taxes account for an average of just 3.38 percent of state tax collections and 2.24 percent of state general revenue. South Dakota and Wyoming are the only states that do not levy a corporate income or gross receipts tax.Ĭorporate income taxes are levied in 44 states.Gross receipts taxes are generally thought to be more economically harmful than corporate income taxes. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding.Įs instead of corporate income taxes. Nevada, Ohio, Texas, and Washington impose gross receipts tax A gross receipts tax is a tax applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation.Eight states-Arizona, Colorado, Kentucky, Mississippi, North Carolina, North Dakota, South Carolina, and Utah-have top rates at or below 5 percent.Six states-Alaska, Illinois, Iowa, Minnesota, New Jersey, and Pennsylvania-levy top marginal corporate income tax A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.Rates range from 2.5 percent in North Carolina to 12 percent in Iowa. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. Forty-four states levy a corporate income tax A corporate income tax (CIT) is levied by federal and state governments on business profits.
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