Corporations are responsible for a bevy of taxes on the state level across different mediums. Above that, each state sets its own rates for corporate entities to contend with. State corporate tax rate varies depending on which state from which you operate your business.
Corporate State Tax Rates Explained
Corporations are a type of business that stands separate from its owners. Owners are shareholders that drive the direction of the business, but are not held personally responsible for the corporation’s debts. The corporation itself is a legal entity that can own assets, bring employees on board, and pay taxes.
Every business has to pay taxes, though. And if you have employees, you’ll need to learn how to calculate payroll taxes. These are in addition to state corporate taxes, though.
Corporate State Income Tax Rates
If you have (or plan to have) a corporation in one of the 50 states, be prepared to pay money back to the state based on how much you make. The government imposes taxes on a corporation’s profits, including most income. As a corporation, you can first deduct expenses for things like development, research, and marketing.
Each state sets its own tax rates a corporation must pay on a yearly rate. Several states have a flat income tax rate, remaining the same no matter what your corporation’s income bracket is. Those remaining have a fee schedule that grows depending on the amount of profit your company brings in.
State Corporate Tax Rate
State Gross Receipts Tax
Some states choose to charge a gross receipts tax either in place of or in addition to a corporate income tax. As the name implies, the government applies the gross receipts tax to a corporation’s gross sales, before any deductions have been made.
Nevada, Ohio, Texas, and Washington do not have state income tax rates but do have a gross receipts tax. Delaware, Oregon, and Tennessee levy both types of taxes on corporation owners.
State Gross Receipts Tax Rate
0.09% – .75%
0.05% – 0.3%
0.26% on sales over $1 million
0.57% on sales over $1 million
0.02% – 0.3%
0.58% – 2%
Corporate State Unemployment Tax Rates
Alongside income taxes, corporations are responsible for unemployment pay as part of the State Unemployment Tax Act (SUTA). The state government calculates these rates based on your account balance and average taxable payroll over a certain period. Each state has a minimum and maximum range the rate must fall into.
Corporate State Unemployment Tax Rates
The Best States to Start a Business in for Tax Purposes
Because tax rates vary from state to state, there are benefits to incorporating in certain ones over the other. If you have any flexibility with where to start your corporation, consider the following states:
Wyoming doesn’t require a penny for state corporate taxes or any income on the individual level. Sales tax is only 4%, one of the lowest in the nation. It ranks number one even though unemployment insurance and property taxes can be on the higher side.
South Dakota follows in Wyoming’s footsteps as one of the few states without income taxes for individuals or corporations. It doesn’t fare as well with sales tax or rates for unemployment insurance.
Alaska may seem like a strange choice with a significant corporate income tax rate, but the state makes up for it with zero individual income taxes and no sales tax. Property taxes are also lower than most for setting up corporate offices.
Florida’s corporate income tax is lower than most, and the state doesn’t collect any individual income taxes from business owners. Furthermore, sales and unemployment taxes are some of the lowest in the country. Florida also makes the list of one of the best states to buy investment property.
Montana has middling corporate and individual income tax rates. However, the state sits well with sales, property, and unemployment taxes, making it an enticing choice to set up shop.
Recent State Corporate Income Tax Rate Changes
Tax rates don’t always stay the same. Check out the rate changes that have already taken place this year:
- Arkansas: Lowered its tax rate from 6.2% to 5.9%
- Florida: Raised its tax rate from 3.35% to 5.5%
- Louisiana: The state’s top tax rate dropped from 8% to 7.5%
- Nebraska: Lowered its top tax rate from 7.81% to 7.5%
- New York: Added a second tax bracket at 7.25%
- Oklahoma: Reduced its tax rate from 6% to 4%
Federal and Local Tax Rates
Corporate taxes don’t start and end at the state level. The Tax Cuts and Jobs Act of 2017 set the current federal corporate tax rate at a flat 21%, where it remains today.
Local taxes may pop up in certain locations around a state, especially in larger cities. Corporations headquartered where local taxes abound will have to pay those fees as well.
Frequently Asked Questions (FAQs) for State Corporate Tax Rate
Trying to understand how state corporate tax rates can be overwhelming. This FAQ answers some of the most common questions surrounding them.
Bottom Line on State Corporate Tax Rates
Corporations can’t avoid having to pay taxes to the government on the federal level, but the state level isn’t so black and white. There are several tax factors to consider when choosing a location to incorporate, such as income and employment. With planning and research, a corporation can lessen the blow each year by setting up shop in a state with little to no corporate taxes.