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Although corporate income taxes are often considered significant, they accounted for only 7.07% of state tax collections and 3.32% of state general revenue in FY 2021. These figures have seen a substantial increase over prior years, with corporate income taxes accounting for 2.27% of general revenue in FY 2020.
Tax rates vary significantly across states. Minnesota imposes the highest top statutory corporate tax rate at 9.8%, followed by Illinois (9.5%) and Alaska (9.4%). On the other hand, North Carolina's flat rate of 2.5% is the lowest in the country. Missouri and Oklahoma (both at 4 percent) and North Dakota (4.31 percent) follow closely.
Interestingly, 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, disparate impacts on low-margin businesses, and non-transparency.
Several states have implemented corporate income tax rate changes over the past few years. Notably, these changes have primarily been reductions rather than increases. These changes took effect on January 1, 2024, in states such as Arkansas, Iowa, Kansas, Nebraska, New Jersey, and Pennsylvania.
Arkansas has been making significant strides in improving its tax competitiveness by reducing income tax rates and consolidating brackets. The elimination of Arkansas's top corporate income tax bracket and the reduction of the top marginal rate from 5.1% to 4.8% for tax year 2024 mark the continuation of this progress.
Iowa's recent comprehensive tax reforms have resulted in the state's top marginal corporate income tax rate decreasing from 8.4% in 2023 to 7.1% in 2024. These rate reductions have contributed to a remarkable improvement in Iowa's tax competitiveness.
Kansas levies what is functionally a two-rate corporate income tax, though it is implemented as a set statutory rate with a surtax on corporate taxable income exceeding $50,000. In 2024, the statutory rate has been reduced to 3.5%, meaning the top marginal rate for businesses exposed to the surtax is now 6.5%.
Nebraska is in the process of phasing down its corporate income tax to a flat 3.9% by 2027. As of January 1, 2024, the top marginal corporate income tax rate experienced a significant reduction from 7.25% to 5.84%.
New Jersey's temporary 2.5 percentage-point corporation business tax surcharge expired at the end of 2023, resulting in the reduction of New Jersey's top marginal corporate income tax rate from 11.5% in 2023 to 9% in 2024.
Pennsylvania's corporate net income tax rate continues on a downward trajectory, decreasing from 8.99% in 2023 to 8.49% in 2024.
It's crucial to stay informed about the tax policies impacting your business. By keeping updated of the latest tax laws and regulations, you can strategically manage your tax obligations and work towards building tax-free wealth.
With the right tax strategist or CPA guiding you, navigating the complex domain of business taxes becomes less daunting. Their expert insights can help you make the most of tax breaks and deductions, ultimately leading to improved tax efficiency and a healthier bottom line for your business.
In conclusion, understanding and strategically managing your business taxes is key to your financial success. By leveraging the expertise of tax professionals and staying updated on the latest tax laws and regulations, you can effectively navigate the tax landscape and build your tax-free wealth.
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