Jeffrey Kwall, professor of law at Loyola University Chicago School of Law, notes that: Is likely because there is no meaningful “ability to pay” concept in corporate taxation. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. imposes a progressive income tax where rates increase with income.

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.

Twenty-nine states and the District of Columbia have single-rate corporate tax systems. South Dakota and Wyoming levy neither corporate income nor gross receipts taxes, and with the enactment of a budget that includes the multiyear phaseout of its corporate income tax, North Carolina is due to join them by 2030. Delaware, Oregon, and Tennessee impose 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. , disparate impacts on low-margin businesses, and non-transparency. Gross receipts taxes are a prime example of tax pyramiding in action. 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, which are 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. Seven other states impose top rates at or below 5 percent: Colorado (4.40 percent), Utah (4.85 percent), Arizona and Indiana (4.9 percent), and Kentucky, Mississippi, and South Carolina (5 percent). Alaska and Pennsylvania levy top statutory corporate tax rates of 9.40 percent and 8.99 percent, respectively.Ĭonversely, North Carolina’s flat rate of 2.5 percent is the lowest in the country, followed by rates in Missouri and Oklahoma (both at 4 percent) and North Dakota (4.31 percent). New Jersey levies the highest top statutory corporate tax rate at 11.5 percent, followed by Minnesota (9.8 percent) and Illinois (9.50 percent). Corporate income taxes accounted for 2.26 percent of general revenue in FY 2020, which is more in line with historical norms. And while these figures are not high, they represent a substantial increase over prior years. Though often thought of as a major tax type, corporate income taxes accounted for an average of just 7.07 percent of state tax collections and 4.04 percent of state general revenue in fiscal year 2021. 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.Ĭorporate income taxes are levied in 44 states. South Dakota and Wyoming are the only states that levy neither a corporate income nor 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.Some localities in Pennsylvania, Virginia, and West Virginia likewise impose gross receipts taxes, which are generally understood to be more economically harmful than corporate income taxes. Delaware, Oregon, and Tennessee impose gross receipts taxes in addition to their corporate income taxes. Nevada, Ohio, Texas, and Washington impose gross receipts taxes instead of corporate income taxes.Eleven states- Arizona, Colorado, Indiana, Kentucky, Mississippi, Missouri, North Carolina, North Dakota, Oklahoma, South Carolina, and Utah-have top rates at or below 5 percent.Four states- Alaska, Illinois, Minnesota, and New Jersey-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 11.5 percent in New Jersey. 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.

2021 colorado income tax brackets