Income is subject to the $10,000 individual SALT cap through the end of 2025, though some pass-through business owners can use workarounds to take full SALT deductions. Some may argue that limiting corporate SALT deductions would equalize the treatment of corporate and pass-through business taxes paid to states and localities. However, neutral treatment could also be achieved by allowing business SALT to be fully deductible for both pass-throughs and corporations. Pass-through entity-level tax regimes adopted by many states, to which the Treasury gave a provisional (and never revisited) blessing, have implicitly allowed pass-throughs to deduct business SALT. The type of sales tax familiar to taxpayers is a tax levied on the purchase price of a good at the point of sale. Due to the inclusion of some business inputs in most states’ sales tax bases, the rate and structure of the sales tax is an important consideration for many businesses.
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Unlike a sales tax, a gross receipts tax is assessed on businesses and applies to transactions at every stage of the production process, leading to tax pyramiding. Rate from 0.3 to 0.15 percent and made reforms to its state capital stock (franchise) tax to reduce burdens on businesses. Until these taxes are eliminated, however, Tennessee is unlikely to improve on its ranking of 8th overall. Not just individual taxpayers, but businesses, too, pay income tax on their earnings. Corporate income tax rates differ from state to state and can have a significant effect on where businesses choose to set up shop.
Understanding your state’s tax burden
Beginning in 2025, Iowa will fully repeal its inheritance tax and implement a 3.8 percent flat individual income tax, both of which will substantially improve the state’s rankings. In the following tables, we have compiled the most up-to-date data available on state individual income tax rates, brackets, standard deductions, and personal exemptions for both single and joint filers. Following the tables, we document notable individual income tax changes implemented in 2025. The historic maps appear as they were originally published early in the applicable tax year; they have not been updated for changes enacted in those years that were retroactively applicable as of the beginning of those tax years. The historic tables, however, have been updated to account for retroactive changes.
States with the lowest property tax rates:
- Twenty-eight states and the District of Columbia have these taxes on the books, though they fall under several names, such as advance interest tax and bond assessment tax (Colorado) and temporary emergency assessment tax (Delaware).
- This subindex includes state and local sales tax rates, excise tax rates for major excise taxes, and digital advertising tax rates (currently only imposed by Maryland).
- Therefore, a person could inherit a family-owned company from his or her parents and be forced to downsize it, or sell part or all of it, in order to pay the heir’s inheritance tax.
- Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections.
This variable measures the number of years allowed on a carryback or carryforward of an NOL deduction. The longer the overall time span, the higher the probability that the corporate income tax is being levied on the corporation’s average profitability. Following the federal treatment of NOLs, states entered FY 2025 with more favorable carryforward provisions (allowing carryforwards for up to an unlimited number of years) compared to carryback provisions (limited to a maximum of three years). States score well on the Index if they conform to federal guidelines or offer their own robust system for carryforwards and carrybacks.
States with highest average tax refunds
States that receive the best scores in this category are Connecticut, Delaware, Louisiana, Ohio, and Vermont. On the other hand, the states that receive the worst scores are Virginia, Nevada, Massachusetts, Maine, and Georgia. Most states charge the most recent or principal employer and forbid most benefit exclusions. The Index measures each state’s tax competitiveness as it stands at the beginning of the standard state fiscal year, July 1. Therefore, this edition is the 2025 Index and represents the tax climate of each state as of July 1, 2024, the first day of fiscal year 2025 for most states.
How the 50 States Rank By Tax Burden
Connecticut is the only state with a gift taxA gift tax is a tax on the transfer of property by a living individual, without payment or a valuable exchange in return. The donor, not the recipient of the gift, is typically liable for the tax., and it scores poorly. Gift taxes are designed to stop individuals’ attempts to avoid the estate tax by giving their estates away before they die.
- 252, enacted in March 2024, New Mexico made notable changes to its tax bracket structure, primarily affecting low- and middle-income households.
- Assessment limits restrict the rate at which a given property’s assessed value can increase each year.
- While that’s higher than the national average, it’s better than many other states that refrain from charging an income tax.
- These states tend to have rate structures with high minimum and maximum rates and wage bases above the federal level.
- Comparatively speaking, these states have rate structures with lower minimum and maximum rates and a wage base approximately at the federal level.
Corporate Taxes
The theoretical argument for R&D tax credits is that they encourage the kind of basic research that is not economically justifiable in the short run but that is better for society in the long run. In practice, their negative side effects—greatly complicating the tax system and establishing a government agency as the arbiter of what types of research meet a criterion so difficult to assess—far outweigh the potential benefits. States that do impose a corporate tax generally will score well if they have a low rate (North Carolina, Missouri, Oklahoma, Mississippi, North Dakota, and Indiana). States with a high rate or a complex and multiple-rate system score poorly (Delaware, Oregon, Tennessee, New Jersey, Minnesota, and Illinois). Fleenor found that shopping areas sprouted in counties of low-tax states that shared a border with a high-tax state, and that approximately 13.3 percent of the cigarettes consumed in the United States during FY 1997 were procured via some type of cross-border activity.
To reduce the double taxation of corporate income, states use apportionment formulas that seek to determine how much of a company’s income a state can properly tax. The taxes paid by businesses should be a concern to everyone because they are ultimately borne by individuals through lower wages, increased prices, and decreased shareholder value. Every change to a state’s tax system makes its business tax climate more or less competitive compared to other states and makes the state more or less attractive to business. Ladd was writing in 1998, so her “period three” started in the late 1980s and continued up to 1998, when the quantity and quality of articles increased significantly.
- Taxpayers can’t reduce their tax burden through relocation, and most of any given state’s corporate tax burden falls on out-of-state businesses with little ability to influence state decision-making.
- The bakery is not the end user because the flour will be baked into bread and sold to consumers.
- The new edition of the Index neither rewards nor penalizes rate limitations, which often have very little effect.
- Additionally, if the state imposes a digital advertising tax (currently only in Maryland), it is penalized by up to 15 percent of the score in this subindex, depending on the tax rate.
- Others, like the gasoline tax, are often used to fund specific projects such as road construction.
- Fisher finds support from Robert Tannenwald, formerly of the Boston Federal Reserve, who argues that taxes are not as important to businesses as public expenditures.
State Tax Competitiveness Index (2020-
This refers to people who state income tax rates are not in work and not seeking work or available to work. Average wage growth was unchanged at 5.9% in the three months to January, according to new data from the Office for National Statistics. The average direct deposit refund was also up by 7.1% from last year – at an average of $3,505. The IRS said the average refund amount has increased by 7.5% this year, going from $3,213 in 2024 to $3,453 so far in 2025. Delaware saw a growth rate of 0.79% from 2023 to 2024, according to the Tax Foundation report. United Van Lines placed this state at #2 on its list noting that more than 50% of the newcomers were age 65 and older and 12% were arriving from New York.