The State Business Tax Climate Index is a measure of how well states structure their tax systems. It enables policymakers, business leaders, and taxpayers to gauge how their states’ tax systems compare, and provides a roadmap for improvement.
Hover over a state in the map to see its rankings. Click a state or tax category to learn more!
Unemp. Insur. Taxes
|District of ColumbiaDC||48||25||48||37||50||39|
The corporate tax component measures impacts of states’ major taxes on business activities, both corporate income and gross receipts taxes.See Map
The individual income tax component of the Index measures the impact of state and local taxes that fall on pass-through businesses.See Map
The sales tax component measures the impact of both sales and excise taxes, particularly when they fall upon business inputs.See Map
The property tax component measures impacts of real and personal property, inventory, estate, inheritance, and other wealth taxes.See Map
The unemployment insurance tax component measures the impact of state UI tax attributes, from schedules to charging methods, on businesses.See Map
Alabama policymakers eliminated the state’s throwback rule—a complex and uncompetitive corporate income tax provision that throws “nowhere” income back into the sales factor of the source state—and decoupled from the Global Intangible Low-Taxed Income (GILTI) provision, which, when incorporated into state tax codes, leads to state taxation of international income. These significant corporate changes drove a six-place improvement in Alabama’s corporate income tax ranking, and improved the state’s ranking one place overall, from 40th to 39th.
As a part of ongoing reform efforts, Arkansas reduced both its individual and corporate rates this year. Within the highest rate schedule, the top rate for individuals lowered from 6.6 percent to 6.2 percent, and the top rate for businesses dropped from 6.6 percent to 5.9 percent. These changes drove an improvement of four places in the corporate component and three places in the individual component, bringing Arkansas from 46th to 44th overall.
Previously, California followed the federal treatment of net operating losses (NOLs), allowing uncapped carryforwards for 20 years. However, due to ill-placed coronavirus-related budget concerns (the state posted a $76 billion surplus), the state has suspended NOLs completely for companies with income over $1 million. That dramatically—if temporarily—alters the state’s treatment of business losses for the worse, and makes it the only state without NOLs, which are an integral part of corporate income taxation. This major shift caused the state’s corporate income tax ranking to fall from 28th to 46th, although California remained at 48th overall.
Idaho recently enacted tax reforms that retroactively consolidated the state’s seven individual income tax brackets into five and lowered the top rate from 6.925 percent to 6.5 percent beginning in tax year 2021. These changes improved the state’s individual income tax ranking by four places and likewise yielded a four-place improvement on its overall score, raising the state from 21st to 17th.
Citing budget concerns due to the pandemic, Illinois temporarily changed its treatment of NOLs to be less favorable toward businesses, capping NOL carryforwards at $100,000 for tax years 2021 through 2024. This new treatment caused the state’s corporate ranking to drop six places, although its overall ranking of 36th is unaffected.
As part of the implementation of a larger tax reform package, Iowa reduced its top corporate income tax from 12 percent to 9.8 percent—paid for through the repeal of corporate federal deductibility—and eliminated its corporate alternative minimum tax. These reforms improved the state’s corporate ranking by eight places and resulted in the overall rank improving from 41st to 38th.
Kansas improved markedly, from 34th to 24th place overall, due to significant reforms to both its sales tax and corporate income tax. Following the Wayfair decision, Kansas was the only state without a safe harbor for smaller remote sellers. In 2021, Kansas established a $100,000 threshold for remote sellers. Additionally, the state replaced its limited NOL regime with conformity to federal provisions and decoupled from GILTI, causing its corporate rank to improve from 31st to 21st.
Legislators in New Mexico created an additional individual income tax bracket on income above $210,000, bringing the state’s top rate from 4.9 percent to 5.9 percent. This dramatic increase caused a 10-place drop in the state’s individual income tax ranking and dropped New Mexico’s overall rank from 22nd to 28th.
New York was one of the rare states to raise taxes in 2021, citing revenue concerns. Previously, New York levied a flat 6.5 percent corporate income tax, but lawmakers created what is functionally a second bracket with a 7.25 percent rate for companies making over $5 million. The top marginal individual income tax rate, meanwhile, has risen from 8.82 percent to 10.9 percent. The legislature also reversed the phaseout of the state’s capital stock tax, reinstating the tax at 0.1875 percent, which lowered the state’s property tax ranking by one place. Despite these changes, New York’s overall rank remained at 49th.
Oregon’s decline from 15th to 22nd overall stems from changes to its unemployment tax system, with higher minimum rates and a larger taxable wage base, as well as the implementation of new municipal income taxes in Portland and improvements in other states.
Pennsylvania made a range of improvements to its unemployment insurance taxes. The Commonwealth used to levy a minimum tax rate of 2.39 percent, the highest among states, but now levies a far more competitive 1.29 percent. A surtax was also repealed. These significant changes helped yield an improvement from 32nd to 29th overall.
This year, Tennessee finished the phaseout of its Hall Tax, which was levied solely on interest and dividends income, since the state already elected not to tax wage income. With this change, the only remaining vestiges of non-corporate income tax treatment is in the state’s treatment of S Corporations and a low-rate gross receipts tax that applies to passthrough businesses, improving the state to sixth best on the income tax component. When combined with other states’ worsening treatment of unemployment insurance, this change brought the state’s overall score from 17th to 8th.