2024 State Business Tax Climate Index

2024

State Business Tax Climate

Index

2024

State Business Tax Climate

Index

Jared Walczak

Andrey Yushkov

Katherine Loughead

Table of Contents

Executive Summary 1

Notable Ranking Changes in this Year’s Index 2

Recent and Scheduled Changes Not Reected in the 2024 Index 7

Introduction 10

Literature Review 12

Measuring the Impact of Tax Differentials 15

Methodology 17

Corporate Tax 20

Corporate Tax Rate 22

Corporate Tax Base 23

Tax Credits 27

Individual Income Tax 28

Individual Income Tax Rate 30

Individual Income Tax Base 32

Alternative Minimum Tax 33

Credit for Taxes Paid 33

Recognition of Limited Liability Corporation and S Corporation Status

Indexation of the Tax Code 34

Sales Taxes 34

Sales Tax Rate 36

Sales Tax Base 37

Excise Taxes 40

Property Tax 41

Property Tax Rate 43

Property Tax Base 45

Unemployment Insurance Taxes 47

Unemployment Insurance Tax Rate 49

Unemployment Insurance Tax Base 50

References 54

Appendix 57

Tax Foundation | 1

Executive Summary

The Tax Foundation’s State Business Tax Climate Index enables business leaders, government policymak-

ers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show

how much is collected in taxes by state governments, the Index is designed to show how well states struc-

ture their tax systems and provides a road map for improvement.

The absence of a major tax is a common factor among many of the top 10 states. Property taxes and

unemployment insurance taxes are levied in every state, but there are several states that do without one

or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. Nevada,

South Dakota, and Wyoming have no corporate or individual income tax (though Nevada imposes gross

receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income

tax; and New Hampshire and Montana have no sales tax. This does not mean, however, that a state

cannot rank in the top 10 while still levying all the major taxes. Indiana and Utah, for example, levy all the

major tax types but do so with low rates on broad bases.

The 10 best states

in this year’s Index are:

The 10 lowest-ranked, or worst,

states in this year’s Index are:

1. Wyoming

2. South Dakota

3. Alaska

4. Florida

5. Montana

6. New Hampshire

7. Nevada

8. Utah

9. North Carolina

10. Indiana

41. Rhode Island

42. Hawaii

43. Vermont

44. Minnesota

45. Maryland

46. Massachusetts

47. Connecticut

48. California

49. New York

50. New Jersey

2024 State Business Tax Climate Index

#35

#16

#17

#44

#34

#11

#24

#28

#43

#49

#33

#30

#46

#37

#31

#47

#41

#48

#36

#10

#50

#27

#22

#12

#26

#21

#45

#25

#18

(#48)

#14

#19

#23

#15

#13

#38

#29

#39

#32

#20

#40

#42

Note: A rank of 1 is best, 50 is worst. D.C.’s score and rank do not affect other

states. The report shows tax systems as of July 1, 2023 (the beginning of

Fiscal Year 2024).

Source: Tax Foundation.

10 Worst Business Tax Climates

10 Best Business Tax Climates

2 | State Business Tax Climate Index 2024

The states in the bottom 10 tend to have a number of aictions in common: complex, nonneutral taxes

with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax

burdens in the country, has the highest-rate corporate income taxes in the country, and has one of the

highest-rate individual income taxes. Additionally, the state has a particularly aggressive treatment of in-

ternational income, levies an inheritance tax, and maintains some of the nation’s worst-structured individ-

ual income taxes.

Notable Ranking Changes in this Year’s Index

Arizona

Arizona transitioned from a two-bracket, graduat-

ed-rate individual income tax system with a top

rate of 2.98 percent to a at tax rate of 2.5 percent,

becoming one of the 11 states with a at individ-

ual income tax structure. Among those 11 states,

Arizona now has the lowest individual income tax

rate. This major development helped the state

improve seven places on the individual income tax

component and ve places overall, from 19

Colorado

Colorado maintained its already competitive 7

place standing on the individual tax component by

reducing the at rate to 4.4 percent, but the state’s

overall ranking fell from 21

to 27

due to notable

improvements in other states, including Mississip-

pi and Wisconsin.

Idaho

In January 2023, Idaho moved to a at individual

income tax structure, consolidating four brackets

with a top marginal rate of 6 percent into a single

rate of 5.8 percent while also reducing its cor-

porate income tax rate to 5.8 percent. This was

enough to improve Idaho’s individual tax compo-

nent ranking by two places, but Idaho’s overall

ranking fell by one due to Arizona improving from

to 14

Iowa

Iowa witnessed signicant changes in its tax

landscape this year. Notably, the state reduced

its top marginal individual income tax rate from

8.53 to 6.0 percent and simplied its rate sched-

ule by consolidating nine brackets into four. The

state is on its way to further reduce individual

income tax rates and transition to a at rate of

3.9 percent by 2026. Additionally, Iowa eliminated

the marriage penalty in its individual income tax

brackets by doubling the bracket widths for mar-

ried couples ling jointly. On the corporate side,

Iowa’s three-bracket corporate income tax was

consolidated into a two-bracket tax, with the top

rate decreasing from 9.8 to 8.4 percent. Subject

to revenue availability, future reforms target a at

corporate income tax rate of 5.5 percent. These

reforms signify a concerted effort by Iowa lawmak-

ers to provide tax relief to residents and enhance

the overall competitiveness of the tax system. As a

result, Iowa’s overall ranking improved from 38

Louisiana

In June 2023, Louisiana lawmakers passed leg-

islation that would have phased out the state’s

franchise tax, which is a capital stock tax that

disincentivizes investment in the state. Phasing

out this inecient tax would have been a positive

development, but the measure was vetoed by the

governor. Nevertheless, S.B. 161, enacted in 2021,

reduced the franchise tax rate from 0.3 to 0.275

percent this year, improving the state’s ranking on

the property tax component from 22

to 21

. Other

Tax Foundation | 3

Table 1. 2024 State Business Tax Climate Index

Ranks and Component Tax Ranks

State

Overall

Rank

Corporate

Tax Rank

Individual

Income

Tax Rank

Sales

Tax Rank

Property

Tax Rank

Unemployment

Insurance

Tax Rank

Alabama 39 19 33 50 17 15

Alaska 3 26 1 5 27 48

Arizona 14 22 9 41 11 10

Arkansas 38 28 37 44 24 24

California 48 45 49 47 22 30

Colorado 27 7 13 40 38 44

Connecticut 47 30 46 23 50 26

Delaware 21 50 43 2 6 1

Florida 4 11 1 19 13 4

Georgia 32 9 35 28 28 34

Hawaii 42 18 47 26 31 41

Idaho 16 27 17 11 2 47

Illinois 37 43 14 39 45 42

Indiana 10 12 16 18 3 25

Iowa 33 29 22 15 41 32

Kansas 26 21 27 29 18 16

Kentucky 18 15 18 13 23 46

Louisiana 40 34 29 48 21 13

Maine 34 35 26 8 46 29

Maryland 45 33 45 34 42 43

Massachusetts 46 36 44 14 47 50

Michigan 11 20 12 12 26 7

Minnesota 44 47 42 31 32 31

Mississippi 20 8 19 25 37 5

Missouri 12 3 20 30 9 3

Montana 5 23 28 3 19 22

Nebraska 30 31 32 9 40 9

Nevada 7 25 5 45 4 45

New Hampshire 6 44 10 1 43 40

New Jersey 50 48 48 43 44 37

New Mexico 23 13 36 35 1 11

New York 49 24 50 42 49 39

North Carolina 9 5 15 20 12 6

North Dakota 17 10 21 32 7 14

Ohio 36 39 40 36 5 12

Oklahoma 19 4 24 38 15 2

Oregon 28 49 41 4 20 38

Pennsylvania 31 41 23 16 14 21

Rhode Island 41 40 31 22 35 49

South Carolina 29 6 30 33 36 27

South Dakota 2 1 1 27 30 35

Tennessee 15 42 6 46 33 20

Texas 13 46 7 37 39 8

Utah 8 14 11 21 8 17

Vermont 43 38 39 17 48 18

Virginia 25 16 34 10 29 36

Washington 35 37 8 49 25 19

West Virginia 22 17 25 24 10 33

Wisconsin 24 32 38 6 16 28

Wyoming 1 1 1 7 34 23

District of Columbia 48 30 48 38 50 38

Note: A rank of 1 is best, 50 is worst. Rankings do not average to the total. States without a tax rank equally as 1. DC’s

score and rank do not affect other states. The report shows tax systems as of July 1, 2023 (the beginning of Fiscal

Year 2024).

Source: Tax Foundation.

4 | State Business Tax Climate Index 2024

recently enacted reforms, described elsewhere, are

not reected in this year’s Index due to effective

dates after July 1, 2023.

Massachusetts

Massachusetts fell further than any other state

in the overall rankings this year, sliding 12 places

since last year. This decline in tax competitiveness

is due to the adoption of Question 1 in November

2022, which amended the state’s constitution

to move from a single-rate to a graduated-rate

income tax by imposing a 4 percent surtax on

income over $1 million, raising the top marginal in-

dividual income tax rate from 5 to 9 percent. While

the $1 million threshold at which the surtax kicks

in is indexed to ination, the surtax imposes a

sizeable marriage penalty that the Commonwealth

lacked previously. This policy change represents a

stark contrast from the recent reforms to reduce

rates while consolidating brackets in many other

states. Simultaneously, a new payroll tax—the im-

plementation of which had previously been post-

poned—went into effect this year. Massachusetts’s

decline in tax competitiveness is evidenced by its

33-place decline in the individual tax component

ranking, falling from 11

to 44

in just one year.

Minnesota

Minnesota ranks in the bottom half of states on

each component of the Index. The state’s corpo-

rate income tax score is, in part, weighed down

by the new election to add Global Intangible Low-

Taxed Income (GILTI) to the corporate tax base.

Generally, states should avoid taxing GILTI, as state

taxation should stop at the water’s edge, and tax-

ing GILTI makes it more expensive for corporations

to operate in a state for reasons having nothing to

do with their activities in that state. Now, Minne-

sota ranks 47

on the corporate tax component, a

loss of four positions compared to last year, and

overall.

Mississippi

Mississippi’s ranking improved from 27

to 20

overall. The state improved from 13

to 8

on the

corporate tax component, due to the adoption of

permanent full expensing for qualied investments

in machinery and equipment. This policy change,

which thus far has been adopted only in Oklahoma

and Mississippi, is the result of H.B. 1733, which

was enacted in March 2023 and is retroactively ef-

fective as of January 1, 2023. The implementation

of a at individual income tax drove a seven-place

improvement on the individual income tax com-

ponent, from 26

to 19

. The Magnolia State will

begin reducing the rate of its individual income tax

next year, which will yield further improvements in

the Index, and is slowly phasing out its franchise

tax.

Missouri

With the enactment of S.B. 3 in October 2022,

Missouri reformed its individual income tax struc-

ture to provide tax relief to residents, reducing

the top marginal rate from 5.3 to 4.95 percent

while consolidating nine brackets into seven. As a

result, Missouri’s individual tax component ranking

improved by one place, from 21

to 20

. If certain

conditions regarding the state’s net revenues are

satised in future years, the rates will be further

reduced.

North Dakota

North Dakota reduced its top marginal individual

income tax rate from 2.9 to 2.5 percent and estab-

lished a wide zero-tax bracket. The state now has

the lowest top marginal rate among those states

that tax wage and salary income. As a result, North

Dakota became more competitive on the individual

income tax component and improved seven plac-

es, from 28

to 21

Tax Foundation | 5

Table 2. State Business Tax Climate Index (2014–2024)

Prior Year Ranks 2023 2024 2023-2024 Change

State 2014 2015 2016 2017 2018 2019 2020 2021 2022 Rank Score Rank Score Rank Score

Alabama 40 40 41 38 39 41 40 40 39 41 4.56 39 4.60 2 0.04

Alaska 4 4 3 3 3 3 3 3 3 3 7.25 3 7.14 0 -0.11

Arizona 27 26 23 24 24 23 22 23 24 19 5.26 14 5.45 5 0.19

Arkansas 41 42 45 42 43 46 44 46 43 40 4.57 38 4.62 2 0.05

California 48 48 48 48 49 48 48 48 48 48 3.56 48 3.64 0 0.08

Colorado 23 22 21 21 20 18 20 19 20 21 5.17 27 5.09 -6 -0.08

Connecticut 47 47 47 47 47 47 47 47 47 47 4.08 47 4.09 0 0.01

Delaware 18 15 15 22 22 14 15 16 16 16 5.31 21 5.29 -5 -0.02

Florida 5 5 4 4 4 4 4 4 4 4 6.85 4 6.84 0 -0.01

Georgia 28 30 33 31 30 34 31 29 30 32 4.99 32 5.01 0 0.02

Hawaii 38 38 36 32 33 39 38 38 41 43 4.51 42 4.50 1 0.00

Idaho 15 18 18 18 18 20 19 20 17 15 5.33 16 5.40 -1 0.07

Illinois 33 36 28 25 29 35 36 36 36 36 4.78 37 4.64 -1 -0.14

Indiana 10 10 10 9 9 10 10 9 9 9 5.63 10 5.60 -1 -0.02

Iowa 45 45 46 46 46 45 45 42 38 38 4.66 33 4.96 5 0.30

Kansas 22 24 26 27 28 31 34 33 23 25 5.13 26 5.10 -1 -0.03

Kentucky 35 35 34 37 37 19 18 17 18 18 5.27 18 5.30 0 0.02

Louisiana 32 33 38 45 45 42 43 41 42 39 4.62 40 4.59 -1 -0.04

Maine 30 34 35 36 35 28 29 32 34 35 4.90 34 4.94 1 0.04

Maryland 39 39 40 41 40 40 42 44 46 46 4.28 45 4.25 1 -0.03

Massachusetts 26 28 27 28 25 30 35 35 35 34 4.92 46 4.14 -12 -0.77

Michigan 11 12 13 13 13 13 12 13 12 12 5.57 11 5.55 1 -0.02

Minnesota 46 46 44 44 44 44 46 45 45 45 4.35 44 4.30 1 -0.04

Mississippi 25 27 29 29 27 27 26 26

28 27 5.07 20 5.30 7 0.22

Missouri 14 16 19 15 15 15 14 11 11 11 5.59 12 5.55 -1 -0.04

Montana 6 6 6 6 6 5 5 5 5 5 6.07 5 6.02 0 -0.05

Nebraska 36 29 30 30 34 25 28 30 31 31 5.02 30 5.01 1 -0.01

Nevada 3 3 5 5 5 6 7 7 6 7 5.93 7 5.82 0 -0.11

New Hampshire 8 7 7 7 7 7 6 6 7 6 5.95 6 5.93 0 -0.03

New Jersey 49 49 50 49 50 50 50 50 50 50 3.37 50 3.43 0 0.06

New Mexico 21 23 24 26 26 24 24 21 26 22 5.16 23 5.18 -1 0.02

New York 50 50 49 50 48 49 49 49 49 49 3.45 49 3.57 0 0.12

North Carolina 31 11 12 11 10 11 11 10 10 10 5.60 9 5.62 1 0.02

North Dakota 19 19 17 17 17 16 17 18 19 17 5.29 17 5.33 0 0.04

Ohio 42 41 42 39 41 37 37 37 37 37 4.72 36 4.74 1 0.02

Oklahoma 20 21 22 20 21 26 27 25 29 23 5.15 19 5.30 4 0.15

Oregon 9 9 9 10 11 9 8 15 22 24 5.14 28 5.07 -4 -0.07

Pennsylvania 37 37 37 33 36 36 33 34 32 33 4.99 31 5.01 2 0.02

Rhode Island 44 43 39 40 38 38 39 39 40 42 4.54 41 4.58 1 0.04

South Carolina 29 31 31 34 32 32 32 31 33 30 5.02 29 5.02 1 -0.01

South Dakota 2 2 2 2 2 2 2 2 2 2 7.43 2 7.46 0 0.03

Tennessee 24 25 25 23 23 29 30 27 14 14 5.44 15 5.43 -1 0.00

Texas 12 13 11 12 12 12 13 12 13 13 5.51 13 5.48 0 -0.03

Utah 7 8 8 8 8 8 9 8 8 8 5.64 8 5.62 0 -0.01

Vermont 43 44 43 43 42 43 41 43 44 44 4.44 43 4.49 1 0.05

Virginia 16 17 20 19 19 21 23 24 25 26 5.07 25 5.11 1 0.03

Washington 13 14 14 14 14 17 16 14 15 29 5.03 35 4.90 -6 -0.13

West Virginia 17 20 16 16 16 22 21 22 21 20 5.21 22 5.18 -2 -0.03

Wisconsin 34 32 32 35 31 33 25 28

27 28 5.07 24 5.12 4 0.04

Wyoming 1 1 1 1 1 1 1 1 1 1 7.76 1 7.72 0 -0.04

District of Columbia 47 48 47 48 48 47 47 48 48 48 3.75 48 3.83 0 0.08

Note: A rank of 1 is best, 50 is worst. Rankings do not average to the total. States without a tax rank equally as 1. DC’s score and rank do

not affect other states. The report shows tax systems as of July 1, 2023 (the beginning of Fiscal Year 2024).

Source: Tax Foundation.

6 | State Business Tax Climate Index 2024

Oklahoma

Oklahoma improved in the rankings again this year,

thanks to a continued emphasis on tax reform.

Specically, the state saw gains on the individual

tax component by eliminating the marriage pen-

alty. On the property tax front, Oklahoma’s split

roll ratio has narrowed, and the state repealed its

capital stock tax, causing the property tax compo-

nent ranking to soar from 30

to 15

. By adopting

permanent full expensing in 2022, Oklahoma main-

tained its 4

-place standing on the corporate tax

component while other states became less com-

petitive by remaining conformed to the phaseout

of the federal bonus depreciation allowance under

Section 168(k), with only 80 percent bonus depre-

ciation offered in 2023, down from 100 percent in

2022. Overall, Oklahoma now ranks 19

, a gain of

four positions compared to last year. The governor

has called for a special session to commence in

October 2023. Any changes that may result could

be reected in the next Index.

Pennsylvania

Pennsylvania’s corporate net income tax was

reduced by one percentage point, from 9.99 to 8.99

percent, effective January 1, 2023. This change is

the result of H.B. 1342, enacted in July 2022, which

also prescribes future reductions of 0.5 percentage

points each year until the rate reaches 4.99 percent

in 2031. This year’s rate reduction helped Penn-

sylvania improve from 33

to 31

overall and from

to 41

on the corporate tax component.

Rhode Island

S.B. 928, enacted in June 2023, exempts from tax-

ation the rst $50,000 of each taxpayer’s otherwise

taxable tangible personal property for calendar

year 2023. As a result, Rhode Island’s property tax

component ranking improved from 41

to 35

, and

the state’s overall ranking improved from 42

South Dakota

South Dakota, which does not have an individual

or corporate income tax, enacted H.B. 1137 in

March 2023, trimming its sales tax rate from 4.5

to 4.2 percent, effective July 1, 2023. This change

improved South Dakota’s sales tax component

ranking by seven places, from 34

to 27

, but this

change was not enough to improve the state’s

overall ranking, which is already 2

in the country.

West Virginia

In March 2023, H.B. 2526 was enacted in West

Virginia, reducing the state’s individual income tax

rates across the board, including reducing the top

marginal rate from 6.5 to 5.12 percent, retroactive

to January 1, 2023. This law also established trig-

gers to reduce future tax rates, subject to revenue

availability. These changes helped improve the

state’s ranking on the individual income tax com-

ponent from 29

to 25

. However, with other states

continuing to improve, West Virginia has fallen two

places overall, from 20

to 22

Tax Foundation | 7

Recent and Scheduled Changes Not Reected in the

2024 Index

Arkansas

As a result of H.B. 1045, enacted in April 2023,

Arkansas is scheduled to phase out its throwback

rule over time, eliminating it entirely by 2030. After

Arkansas’s planned repeal of its throwback rule

is complete, the state’s corporate tax component

score will improve.

Georgia

On January 1, 2024, Georgia will transition from

a graduated individual income tax with a top rate

of 5.75 percent to a at tax structure with a rate

of 5.49 percent. Per H.B. 1437, enacted in April

2022, the rate could decrease to 4.99 percent by

January 1, 2029, if certain revenue conditions are

met, paired with substantial increases in person-

al exemptions. Both the rate reductions and the

single-rate tax structure would improve Georgia’s

ranking on the Index.

Indiana

House Bill 1001, enacted in May 2023, accelerated

Indiana’s previously enacted tax rate reductions,

reducing the individual income tax rate from 3.15

to 3.05 percent in 2024. The law also repealed

previously enacted tax triggers, instead prescribing

rate reductions to bring the rate to 3.0 percent in

2025, 2.95 percent in 2026, and 2.9 percent in 2027

and beyond. These rate reductions will improve

Indiana’s score on the individual tax component in

future years.

Iowa

Iowa’s recent comprehensive tax reforms will

continue phasing in over time, further improving

the state’s rankings as Iowa moves toward a at

individual income tax rate of 3.9 percent in 2026

and a at corporate income tax with a target rate

of 5.5 percent, subject to tax triggers.

Kentucky

House Bill 1 was signed into law in February 2023,

reducing Kentucky’s at individual income tax rate

from 4.5 percent in 2023 to 4.0 percent starting in

2024, codifying a reduction that was triggered un-

der the conditions established by H.B. 8, enacted

in 2022. This scheduled rate reduction will improve

Kentucky’s score on the individual tax component

in the future.

Louisiana

House Bill 631, enacted in June 2023, repeals

Louisiana’s complex and economically harmful

throwout rule, effective January 1, 2024, leaving

Maine as the only state to keep such a rule on the

books. Additionally, with the enactment of H.B.

171 in May 2023, the state also removed the 200

transactions threshold for economic nexus for re-

mote sellers. This means that only those with more

than $100,000 in gross revenue in the state will be

subject to sales tax collection and remittance ob-

ligations. These improvements will show up in the

next edition of the Index, as they took effect after

the July 1, 2023, snapshot date.

Michigan

Michigan’s at individual income tax rate has been

reduced from 4.25 to 4.05 percent for 2023, the

automatic result of a 2015 law that prescribed tax

rate reductions for any year, beginning in 2023, in

which general fund revenue growth exceeds the

rate of ination growth. In March 2023, Attorney

General Dana Nessel issued a legal opinion stipu-

lating that the rate will revert back to 4.25 percent

for 2024 and beyond. This opinion has sparked

debate among legislators and stakeholders as to

the intent and letter of the 2015 law and created

uncertainty regarding the possibility of a near-term

rate increase. If the rate reverts to 4.25 percent in

2024, Michigan’s score will be negatively affected.

8 | State Business Tax Climate Index 2024

Mississippi

Under HB 531, enacted in April 2022, Mississippi

converted its graduated-rate individual income tax

to a single-rate tax of 5 percent on taxable income

exceeding $10,000, effective January 1, 2023. The

at rate is scheduled to decrease to 4.7 percent in

2024, 4.4 percent in 2025, and 4 percent in 2026.

These reductions will further improve Mississippi’s

ranking.

Montana

Montana was among the states to enact individual

income tax cuts in 2021, reducing the top marginal

rate from 6.9 percent in 2021 to 6.75 percent in

2022 and scheduling a future reduction, along with

bracket consolidation and other structural reforms,

for 2024. Originally, the 2021 law converted Mon-

tana’s seven marginal rates into two, with rates of

4.7 and 6.5 percent, effective in 2024. However, in

March 2022, S.B. 121 was enacted, reducing the

top marginal rate even further—to 5.9 percent—be-

ginning in 2024. Although the lowest rate will rise

to 4.7 percent in 2024, conforming to the federal

standard deduction in 2025 will yield tax savings

for lower-income taxpayers. This law also dou-

bles the bracket widths for married lers, thereby

removing the marriage penalty that currently exists

in the state’s income tax code. These reforms will

yield a favorable ranking change.

Nebraska

Nebraska has taken strides to improve its tax

competitiveness in recent years and continued that

work in 2023 by accelerating previously enacted

individual and corporate income tax rate cuts and

reducing rates further than originally planned. Leg-

islative Bill 754, enacted in May 2023, will gradually

phase down Nebraska’s top marginal individual

and corporate income tax rates to 3.99 percent in

2027, with initial reductions of both top marginal

rates to 5.84 percent in 2024, reaching that target

rate three years earlier than initially anticipated.

This new law also converts Nebraska’s graduat-

ed-rate corporate income tax into a single-rate tax

in 2025 and consolidates Nebraska’s four marginal

individual income tax rates into three starting in

2026. Assuming these reforms proceed as sched-

uled, Nebraska’s corporate and individual tax com-

ponent scores will continue to improve.

New Hampshire

Senate Bill 189, enacted in July 2023, decouples

New Hampshire from the business net interest lim-

itation under IRC Section 163(j), thereby allowing

businesses to fully deduct their interest expenses

in the year those expenses are incurred, effective

January 1, 2024. Thischanges will improve New

Hampshire’s score on the corporate tax compo-

nent. Additionally, the state budget (H.B. 2), enact-

ed in June 2023, accelerates the phaseout of New

Hampshire’s tax on interest and dividends income,

eliminating the tax by January 2025, rather than

2027. This will improve New Hampshire’s score on

the individual tax component.

New Jersey

Assembly Bill 5323, enacted in July 2023, made

several changes to New Jersey’s corporate income

tax code, including reducing the taxation of GILTI

from 50 to 5 percent, effective for privilege periods

ending on or after July 31, 2023. This change will

help New Jersey’s corporate tax component score

in the future. However, that same law will also new-

ly conform New Jersey to the 80 percent federal

limitation on NOL carryforwards without adopting

a corresponding unlimited recovery period in-

cluded in federal law. Additionally, New Jersey’s

2.5 percent corporation business tax surcharge

is scheduled to expire at the end of 2023, which

would result in the reduction of New Jersey’s top

marginal corporate income tax rate from 11.5 to 9

percent. If the surcharge is indeed allowed to ex-

pire, New Jersey’s corporate tax component score

will improve in the future.

Tax Foundation | 9

Oklahoma

House Bill 1040, enacted in May 2023, removes

the marriage penalty from Oklahoma’s individu-

al income tax brackets by adjusting the bracket

threshold at which the top marginal rate kicks in to

$14,400, making it double the threshold at which

the top marginal rate kicks in for single lers. This

change, which will improve Oklahoma’s individual

component score, is applicable beginning in tax

year 2024.

Pennsylvania

Under H.B. 1342, enacted in June 2022, Pennsylva-

nia reduced its corporate net income tax rate from

9.99 to 8.99 percent on January 1, 2023. In 2024

and years thereafter, the rate will decrease by 0.5

percentage points until it reaches 4.99 percent at

the beginning of 2031, transforming the nation’s

second-highest corporate income tax rate into a

much more competitive system of corporate taxa-

tion. As such, Pennsylvania’s corporate tax compo-

nent score will continue to improve.

South Dakota

House Bill 1137, enacted in March 2023, reduced

South Dakota’s sales tax rate from 4.5 to 4.2 per-

cent, effective July 1, 2023, improving the state’s

sales tax component score. However, this rate

reduction is scheduled to expire on July 1, 2027,

meaning this improvement in score might be short-

lived.

West Virginia

In addition to reducing individual income tax rates

across the board, retroactive to January 1, 2023,

H.B. 2526, enacted in March 2023, established a

set of triggers that could reduce rates further in

future years, starting in 2025, subject to revenue

availability. If future rates are reduced, West Virgin-

ia’s individual tax component score will improve.

Wisconsin

Assembly Bill 245, enacted in June 2023, repeals

Wisconsin’s tangible personal property tax begin-

ning with the January 1, 2024, property tax assess-

ment. Since this change does not benet taxpayers

until after the July 1, 2023, snapshot date, this

change was not reected in the current Index but

will improve Wisconsin’s property tax component

score in the future.

10 | State Business Tax Climate Index 2024

Introduction

Taxation is inevitable, but the specics of a state’s tax structure matter greatly. The measure of total taxes

paid is relevant, but other elements of a state tax system can also enhance or harm the competitiveness

of a state’s business environment. The State Business Tax Climate Index distills many complex consider-

ations to an easy-to-understand ranking.

The modern market is characterized by mobile capital and labor, with all types of businesses, small and

large, tending to locate where they have the greatest competitive advantage. The evidence shows that

states with the best tax systems will be the most competitive at attracting new businesses and most

effective at generating economic and employment growth. It is true that taxes are but one factor in busi-

ness decision-making. Other concerns also matter–such as access to raw materials or infrastructure or

a skilled labor pool–but a simple, sensible tax system can positively impact business operations with

regard to these resources. Furthermore, unlike changes to a state’s health-care, transportation, or educa-

tion systems, which can take decades to implement, changes to the tax code can quickly improve a state’s

business climate.

It is important to remember that even in our global economy, states’ stiffest competition often comes

from other states. The Department of Labor reports that most mass job relocations are from one U.S.

state to another rather than to a foreign location.

Certainly, job creation is rapid overseas, as previously

underdeveloped nations enter the world economy, though in the aftermath of federal tax reform, U.S. busi-

nesses no longer face the third-highest corporate tax rate in the world, but rather one in line with averages

for industrialized nations.

State lawmakers are right to be concerned about how their states rank in the

global competition for jobs and capital, but they need to be more concerned with companies moving from

Detroit, Michigan, to Dayton, Ohio, than from Detroit to New Delhi, India. This means that state lawmakers

must be aware of how their states’ business climates match up against their immediate neighbors and to

other regional competitor states.

Anecdotes about the impact of state tax systems on business investment are plentiful. In Illinois early

last decade, hundreds of millions of dollars of capital investments were delayed when then-Governor Rod

Blagojevich (D) proposed a hefty gross receipts tax.

Only when the legislature resoundingly defeated

the bill did the investment resume. In 2005, California-based Intel decided to build a multibillion-dollar

chip-making facility in Arizona due to its favorable corporate income tax system.

In 2010, Northrup Grum-

man chose to move its headquarters to Virginia over Maryland, citing the better business tax climate.

2015, General Electric and Aetna threatened to decamp from Connecticut if the governor signed a budget

that would increase corporate tax burdens, and General Electric actually did so.

Anecdotes such as these

reinforce what we know from economic theory: taxes matter to businesses, and those places with the

most competitive tax systems will reap the benets of business-friendly tax climates.

1 See U.S. Department of Labor,“Extended Mass Layoffs, First Quarter 2013 ,” Table 10, May 13, 2013.

2 Daniel Bunn, “Corporate Income Tax Rates Around the World, 2018,” Tax Foundation, Nov. 27, 2018, https://taxfoundation.org/publications/corporate-tax-rates-https://taxfoundation.org/publications/corporate-tax-rates-

around-the-world/around-the-world/.

3 Editorial, “Scale it back, Governor,” Chicago Tribune, March 23, 2007.

4 Ryan Randazzo, Edythe Jenson, and Mary Jo Pitzl, “Cathy Carter Blog: Chandler getting new $5 billion Intel facility,” AZCentral.com, Mar. 6, 2013.

5 Dana Hedgpeth and Rosalind Helderman, “Northrop Grumman decides to move headquarters to Northern Virginia,” The Washington Post, April 27, 2010.

6 Susan Haigh, “Connecticut House Speaker: Tax ‘mistakes’ made in budget,” Associated Press, Nov. 5, 2015.

Tax Foundation | 11

Tax competition is an unpleasant reality for state revenue and budget ocials, but it is an effective re-

straint on state and local taxes. When a state imposes higher taxes than a neighboring state, businesses

will cross the border to some extent. Therefore, states with more competitive tax systems score well in

the Index because they are best suited to generate economic growth.

State lawmakers are mindful of their states’ business tax climates, but they are sometimes tempted to

lure business with lucrative tax incentives and subsidies instead of broad-based tax reform. This can be

a dangerous proposition, as the example of Dell Computers and North Carolina illustrates. North Carolina

agreed to $240 million worth of incentives to lure Dell to the state. Many of the incentives came in the

form of tax credits from the state and local governments. Unfortunately, Dell announced in 2009 that it

would be closing the plant after only four years of operations.

A 2007 USA TODAY article chronicled simi-

lar problems other states have had with companies that receive generous tax incentives.

Lawmakers make these deals under the banner of job creation and economic development, but the truth

is that if a state needs to offer such packages, it is most likely covering for an undesirable business tax

climate. A far more effective approach is the systematic improvement of the state’s business tax climate

for the long term to improve the state’s competitiveness. When assessing which changes to make, law-

makers need to remember two rules:

1. Taxes matter to business. Business taxes affect business decisions, job creation and

retention, plant location, competitiveness, the transparency of the tax system, and the long-

term health of a state’s economy. Most importantly, taxes diminish prots. If taxes take a

larger portion of prots, that cost is passed along to either consumers (through higher pric-

es), employees (through lower wages or fewer jobs), shareholders (through lower dividends

or share value), or some combination of the above. Thus, a state with lower tax costs will

be more attractive to business investment and more likely to experience economic growth.

2. States do not enact tax changes (increases or cuts) in a vacuum. Every tax law will in

some way change a state’s competitive position relative to its immediate neighbors, its

region, and even globally. Ultimately, it will affect the state’s national standing as a place to

live and to do business. Entrepreneurial states can take advantage of the tax increases of

their neighbors to lure businesses out of high-tax states.

To some extent, tax-induced economic distortions are a fact of life, but policymakers should strive to

maximize the occasions when businesses and individuals are guided by business principles and minimize

those cases where economic decisions are inuenced, micromanaged, or even dictated by a tax system.

The more riddled a tax system is with politically motivated preferences, the less likely it is that business

decisions will be made in response to market forces. The Index rewards those states that minimize tax-in-

duced economic distortions.

7 Austin Mondine, “Dell cuts North-Carolina plant despite $280m sweetener,” TheRegister.co.uk, Oct. 8, 2009.

8 Dennis Cauchon, “Business Incentives Lose Luster for States,” USA TODAY, Aug. 22, 2007.

12 | State Business Tax Climate Index 2024

Ranking the competitiveness of 50 very different tax systems presents many challenges, especially when

a state dispenses with a major tax entirely. Should Indiana’s tax system, which includes three relatively

neutral taxes on sales, individual income, and corporate income, be considered more or less competitive

than Alaska’s tax system, which includes a particularly burdensome corporate income tax but no state-

wide tax on individual income or sales?

The Index deals with such questions by comparing the states on more than 120 variables in the ve major

areas of taxation (corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes,

and property taxes) and then adding the results to yield a nal, overall ranking. This approach rewards

states on particularly strong aspects of their tax systems (or penalizes them on particularly weak as-

pects), while measuring the general competitiveness of their overall tax systems. The result is a score that

can be compared to other states’ scores. Ultimately, both Alaska and Indiana score well.

Literature Review

Economists have not always agreed on how individuals and businesses react to taxes. As early as 1956,

Charles Tiebout postulated that if citizens were faced with an array of communities that offered different

types or levels of public goods and services at different costs or tax levels, then all citizens would choose

the community that best satised their particular demands, revealing their preferences by “voting with

their feet.” Tiebout’s article is the seminal work on the topic of how taxes affect the location decisions of

taxpayers.

Tiebout suggested that citizens with high demands for public goods would concentrate in communities

with high levels of public services and high taxes while those with low demands would choose communi-

ties with low levels of public services and low taxes. Competition among jurisdictions results in a variety

of communities, each with residents who all value public services similarly.

However, businesses sort out the costs and benets of taxes differently from individuals. For business-

es, which can be more mobile and must earn prots to justify their existence, taxes reduce protability.

Theoretically, businesses could be expected to be more responsive than individuals to the lure of low-tax

jurisdictions. Research suggests that corporations engage in “yardstick competition,” comparing the costs

of government services across jurisdictions. Shleifer (1985) rst proposed comparing regulated franchis-

es in order to determine eciency. Salmon (1987) extended Shleifer’s work to look at subnational govern-

ments. Besley and Case (1995) showed that “yardstick competition” affects voting behavior, and Bosch

and Sole-Olle (2006) further conrmed the results found by Besley and Case. Tax changes that are out of

sync with neighboring jurisdictions will impact voting behavior.

The economic literature over the past 50 years has slowly cohered around this hypothesis. Ladd (1998)

summarizes the post-World War II empirical tax research literature in an excellent survey article, breaking

it down into three distinct periods of differing ideas about taxation: (1) taxes do not change behavior; (2)

taxes may or may not change business behavior depending on the circumstances; and (3) taxes denitely

change behavior.

Tax Foundation | 13

Period one, with the exception of Tiebout, included the 1950s, 1960s, and 1970s and is summarized

succinctly in three survey articles: Due (1961), Oakland (1978), and Wasylenko (1981). Due’s was a po-

lemic against tax giveaways to businesses, and his analytical techniques consisted of basic correlations,

interview studies, and the examination of taxes relative to other costs. He found no evidence to support

the notion that taxes inuence business location. Oakland was skeptical of the assertion that tax differ-

entials at the local level had no inuence at all. However, because econometric analysis was relatively

unsophisticated at the time, he found no signicant articles to support his intuition. Wasylenko’s survey of

the literature found some of the rst evidence indicating that taxes do inuence business location deci-

sions. However, the statistical signicance was lower than that of other factors such as labor supply and

agglomeration economies. Therefore, he dismissed taxes as a secondary factor at most.

Period two was a brief transition during the early- to mid-1980s. This was a time of great ferment in tax

policy as Congress passed major tax bills, including the so-called Reagan tax cut in 1981 and a dramatic

reform of the federal tax code in 1986. Articles revealing the economic signicance of tax policy proliferat-

ed and became more sophisticated. For example, Wasylenko and McGuire (1985) extended the traditional

business location literature to nonmanufacturing sectors and found, “Higher wages, utility prices, personal

income tax rates, and an increase in the overall level of taxation discourage employment growth in several

industries.” However, Newman and Sullivan (1988) still found a mixed bag in “their observation that signi-

cant tax effects [only] emerged when models were carefully specied.”

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 signicantly. Articles that t into period three begin to sur-

face as early as 1985, as Helms (1985) and Bartik (1985) put forth forceful arguments based on empirical

research that taxes guide business decisions. Helms concluded that a state’s ability to attract, retain, and

encourage business activity is signicantly affected by its pattern of taxation. Furthermore, tax increases

signicantly retard economic growth when the revenue is used to fund transfer payments. Bartik conclud-

ed that the conventional view that state and local taxes have little effect on business is false.

Papke and Papke (1986) found that tax differentials among locations may be an important business loca-

tion factor, concluding that consistently high business taxes can represent a hindrance to the location of

industry. Interestingly, they use the same type of after-tax model used by Tannenwald (1996), who reaches

a different conclusion.

Bartik (1989) provides strong evidence that taxes have a negative impact on business start-ups. He nds

specically that property taxes, because they are paid regardless of prot, have the strongest negative

effect on business. Bartik’s econometric model also predicts tax elasticities of -0.1 to -0.5 that imply a 10

percent cut in tax rates will increase business activity by 1 to 5 percent. Bartik’s ndings, as well as those

of Mark, McGuire, and Papke (2000), and ample anecdotal evidence of the importance of property taxes,

buttress the argument for inclusion of a property index devoted to property-type taxes in the Index.

14 | State Business Tax Climate Index 2024

By the early 1990s, the literature had expanded suciently for Bartik (1991) to identify 57 studies on

which to base his literature survey. Ladd succinctly summarizes Bartik’s ndings:

The large number of studies permitted Bartik to take a different approach from the oth-

er authors. Instead of dwelling on the results and limitations of each individual study, he

looked at them in the aggregate and in groups. Although he acknowledged potential criti-

cisms of individual studies, he convincingly argued that some systematic aw would have

to cut across all studies for the consensus results to be invalid. In striking contrast to previ-

ous reviewers, he concluded that taxes have quite large and signicant effects on business

activity.

Ladd’s “period three” surely continues to this day. Agostini and Tulayasathien (2001) examined the effects

of corporate income taxes on the location of foreign direct investment in U.S. states. They determined

that for “foreign investors, the corporate tax rate is the most relevant tax in their investment decision.”

Therefore, they found that foreign direct investment was quite sensitive to states’ corporate tax rates.

Mark, McGuire, and Papke (2000) found that taxes are a statistically signicant factor in private-sector

job growth. Specically, they found that personal property taxes and sales taxes have economically large

negative effects on the annual growth of private employment.

Harden and Hoyt (2003) point to Phillips and Gross (1995) as another study contending that taxes impact

state economic growth, and they assert that the consensus among recent literature is that state and local

taxes negatively affect employment levels. Harden and Hoyt conclude that the corporate income tax has

the most signicant negative impact on the rate of growth in employment.

Gupta and Hofmann (2003) regressed capital expenditures against a variety of factors, including weights

of apportionment formulas, the number of tax incentives, and burden gures. Their model covered 14

years of data and determined that rms tend to locate property in states where they are subject to lower

income tax burdens. Furthermore, Gupta and Hofmann suggest that throwback requirements are the most

inuential on the location of capital investment, followed by apportionment weights and tax rates, and

that investment-related incentives have the least impact.

Other economists have found that taxes on specic products can produce behavioral results similar to

those that were found in these general studies. For example, Fleenor (1998) looked at the effect of excise

tax differentials between states on cross-border shopping and the smuggling of cigarettes. Moody and

Warcholik (2004) examined the cross-border effects of beer excises. Their results, supported by the litera-

ture in both cases, showed signicant cross-border shopping and smuggling between low-tax states and

high-tax states.

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. Similarly, Moody and Warcholik found that in

2000, 19.9 million cases of beer, on net, moved from low- to high-tax states. This amounted to some $40

million in sales and excise tax revenue lost in high-tax states.

Tax Foundation | 15

Although the literature has largely congealed around a general consensus that taxes are a substantial fac-

tor in the decision-making process for businesses, disputes remain, and some scholars are unconvinced.

Based on a substantial review of the literature on business climates and taxes, Wasylenko (1997) con-

cludes that taxes do not appear to have a substantial effect on economic activity among states. However,

his conclusion is premised on there being few signicant differences in state tax systems. He concedes

that high-tax states will lose economic activity to average or low-tax states “as long as the elasticity is

negative and signicantly different from zero.” Indeed, he approvingly cites a State Policy Reports article

that nds that the highest-tax states, such as Minnesota, Wisconsin, and New York, have acknowledged

that high taxes may be responsible for the low rates of job creation in those states.

Wasylenko’s rejoinder is that policymakers routinely overestimate the degree to which tax policy affects

business location decisions and that as a result of this misperception, they respond readily to public

pressure for jobs and economic growth by proposing lower taxes. According to Wasylenko, other legisla-

tive actions are likely to accomplish more positive economic results because in reality, taxes do not drive

economic growth.

However, there is ample evidence that states compete for businesses using their tax systems. A recent

example comes from Illinois, where in early 2011 lawmakers passed two major tax increases. The individ-

ual income tax rate increased from 3 percent to 5 percent, and the corporate income tax rate rose from

7.3 percent to 9.5 percent.

The result was that many businesses threatened to leave the state, including

some very high-prole Illinois companies such as Sears and the Chicago Mercantile Exchange. By the end

of the year, lawmakers had cut deals with both rms, totaling $235 million over the next decade, to keep

them from leaving the state.

A new literature review, Kleven et al. (2019), summarizes recent evidence for tax-driven migration. Mean-

while, Giroud and Rauh (2019) use microdata on multistate rms to estimate the impact of state taxes on

business activity, and nd that C corporation employment and establishments have short-run corporate

tax elasticities of -0.4 to -0.5, while pass-through entities show elasticities of -0.2 to -0.4, meaning that,

for each percentage-point increase in the rate, employment decreases by 0.4 to 0.5 percent for C corpo-

rations subject to the corporate income tax, and by 0.2 to 0.4 percent within pass-through businesses

subject to the individual income tax.

Measuring the Impact of Tax Differentials

Some recent contributions to the literature on state taxation criticize business and tax climate studies in

general.

Authors of such studies contend that comparative reports like the State Business Tax Climate

Index do not take into account those factors which directly impact a state’s business climate. However,

9 State Policy Reports, Vol. 12, No. 11, Issue 1, p. 9, June 1994.

10 Both rate increases had a temporary component and were allowed to partially expire before legislators overrode a gubernatorial veto to increase rates above

where they would have been should they have been allowed to sunset.

11 Benjamin Yount, “Tax increase, impact, dominate Illinois Capitol in 2011,” Illinois Statehouse News, Dec. 27, 2011.

12 A trend in tax literature throughout the 1990s was the increasing use of indices to measure a state’s general business climate. These include the Center for Policy

and Legal Studies’ Economic Freedom in America’s 50 States: A 1999 Analysis and the Beacon Hill Institute’s State Competitiveness Report 2001. Such indexes

even exist on the international level, including the Heritage Foundation and The Wall Street Journal’s 2004 Index of Economic Freedom. Plaut and Pluta (1983) ex-

amined the use of business climate indices as explanatory variables for business location movements. They found that such general indices do have a signicant

explanatory power, helping to explain, for example, why businesses have moved from the Northeast and Midwest toward the South and Southwest. In turn, they

also found that high taxes have a negative effect on employment growth.

16 | State Business Tax Climate Index 2024

a careful examination of these criticisms reveals that the authors believe taxes are unimportant to busi-

nesses and therefore dismiss the studies as merely being designed to advocate low taxes.

Peter Fisher’s Grading Places: What Do the Business Climate Rankings Really Tell Us? now published by

Good Jobs First, criticizes four indices: The U.S. Business Policy Index published by the Small Business

and Entrepreneurship Council, Beacon Hill’s Competitiveness Report, the American Legislative Exchange

Council’s Rich States, Poor States, and this study. The rst edition also critiqued the Cato Institute’s Fiscal

Policy Report Card and the Economic Freedom Index by the Pacic Research Institute. In the report’s rst

edition, published before Fisher summarized his objections: “The underlying problem with the … indexes,

of course, is twofold: none of them actually do a very good job of measuring what it is they claim to mea-

sure, and they do not, for the most part, set out to measure the right things to begin with” (Fisher 2005).

In the second edition, he identied three overarching questions: (1) whether the indices included relevant

variables, and only relevant variables; (2) whether these variables measured what they purport to measure;

and (3) how the index combines these measures into a single index number (Fisher 2013). Fisher’s prima-

ry argument is that if the indexes did what they purported to do, then all ve would rank the states similar-

ly.

Fisher’s conclusion holds little weight because the ve indices serve such dissimilar purposes, and each

group has a different area of expertise. There is no reason to believe that the Tax Foundation’s Index,

which depends entirely on state tax laws, would rank the states in the same or similar order as an index

that includes crime rates, electricity costs, and health care (the Small Business and Entrepreneurship

Council’s Small Business Survival Index), or infant mortality rates and the percentage of adults in the work-

force (Beacon Hill’s State Competitiveness Report), or charter schools, tort reform, and minimum wage

laws (the Pacic Research Institute’s Economic Freedom Index).

The Tax Foundation’s State Business Tax Climate Index is an indicator of which states’ tax systems are

the most hospitable to business and economic growth. The Index does not purport to measure economic

opportunity or freedom, or even the broad business climate, but rather the narrower business tax climate,

and its variables reect this focus. We do so not only because the Tax Foundation’s expertise is in taxes,

but because every component of the Index is subject to immediate change by state lawmakers. It is by no

means clear what the best course of action is for state lawmakers who want to thwart crime, for example,

either in the short or long term, but they can change their tax codes now. Contrary to Fisher’s 1970s view

that the effects of taxes are “small or non-existent,” our study reects strong evidence that business deci-

sions are signicantly impacted by tax considerations.

Although Fisher does not feel tax climates are important to states’ economic growth, other authors con-

tend the opposite. Bittlingmayer, Eathington, Hall, and Orazem (2005) nd in their analysis of several

business climate studies that a state’s tax climate does affect its economic growth rate and that several

indices are able to predict growth. Specically, they concluded, “The State Business Tax Climate Index

explains growth consistently.” This nding was conrmed by Anderson (2006) in a study for the Michigan

House of Representatives, and more recently by Kolko, Neumark, and Mejia (2013), who, in an analysis of

the ability of 10 business climate indices to predict economic growth, concluded that the State Business

Tax Climate Index yields “positive, sizable, and statistically signicant estimates for every specication”

Tax Foundation | 17

they measured, and specically cited the Index as one of two business climate indices (out of 10) with

particularly strong and robust evidence of predictive power.

Bittlingmayer et al. also found that relative tax competitiveness matters, especially at the borders, and

therefore, indices that place a high premium on tax policies do a better job of explaining growth. They also

observed that studies focused on a single topic do better at explaining economic growth at borders. Last-

ly, the article concludes that the most important elements of the business climate are tax and regulatory

burdens on business (Bittlingmayer et al. 2005). These ndings support the argument that taxes impact

business decisions and economic growth, and they support the validity of the Index.

Fisher and Bittlingmayer et al. hold opposing views about the impact of taxes on economic growth. Fisher

nds support from Robert Tannenwald, formerly of the Boston Federal Reserve, who argues that taxes are

not as important to businesses as public expenditures. Tannenwald compares 22 states by measuring the

after-tax rate of return to cash ow of a new facility built by a representative rm in each state. This very

different approach attempts to compute the marginal effective tax rate of a hypothetical rm and yields

results that make taxes appear trivial.

The taxes paid by businesses should be a concern to everyone because they are ultimately borne by indi-

viduals through lower wages, increased prices, and decreased shareholder value. States do not institute

tax policy in a vacuum. 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. Ultimately,

anecdotal and empirical evidence, along with the cohesion of recent literature around the conclusion that

taxes matter a great deal to business, show that the Index is an important and useful tool for policymak-

ers who want to make their states’ tax systems welcoming to business.

Methodology

The Tax Foundation’s State Business Tax Climate Index is a hierarchical structure built from ve compo-

nents:

• Individual Income Tax

• Sales Tax

• Corporate Income Tax

• Property Tax

• Unemployment Insurance Tax

Using the economic literature as our guide, we designed these ve components to score each state’s busi-

ness tax climate on a scale of 0 (worst) to 10 (best). Each component is devoted to a major area of state

taxation and includes numerous variables. Overall, there are 125 variables measured in this report.

18 | State Business Tax Climate Index 2024

The ve components are not weighted equally, as they are in some indices. Rather, each component is

weighted based on the variability of the 50 states’ scores from the mean. The standard deviation of each

component is calculated and a weight for each component is created from that measure. The result is a

heavier weighting of those components with greater variability. The weighting of each of the ve major

components is:

29.8% — Individual Income Tax

23.3% — Sales Tax

20.9% — Corporate Tax

14.9% — Property Tax

11.1% — Unemployment Insurance Tax

This improves the explanatory power of the State Business Tax Climate Index as a whole because com-

ponents with higher standard deviations are those areas of tax law where some states have signicant

competitive advantages. Businesses that are comparing states for new or expanded locations must give

greater emphasis to tax climates when the differences are large. On the other hand, components in which

the 50 state scores are clustered together, closely distributed around the mean, are those areas of tax law

where businesses are more likely to de-emphasize tax factors in their location decisions. For example,

Delaware is known to have a signicant advantage in sales tax competition, because its tax rate of zero

attracts businesses and shoppers from all over the Mid-Atlantic region. That advantage and its drawing

power increase every time another state raises its sales tax.

In contrast with this variability in state sales tax rates, unemployment insurance tax systems are similar

around the nation, so a small change in one state’s law could change its component ranking dramatically.

Within each component are two equally weighted subindices devoted to measuring the impact of the tax

rates and the tax bases. Each subindex is composed of one or more variables. There are two types of

variables: scalar variables and dummy variables. A scalar variable is one that can have any value between

0 and 10. If a subindex is composed only of scalar variables, then they are weighted equally. A dummy

variable is one that has only a value of 0 or 1. For example, a state either indexes its brackets for ination

or does not. Mixing scalar and dummy variables within a subindex is problematic because the extreme

valuation of a dummy can overly inuence the results of the subindex. To counter this effect, the Index

generally weights scalar variables at 80 percent and dummy variables at 20 percent.

Relative versus Absolute Indexing

The State Business Tax Climate Index is designed as a relative index rather than an absolute or ideal index.

In other words, each variable is ranked relative to the variable’s range in other states. The relative scoring

scale is from 0 to 10, with zero meaning not “worst possible” but rather worst among the 50 states.

Many states’ tax rates are so close to each other that an absolute index would not provide enough infor-

mation about the differences among the states’ tax systems, especially for pragmatic business owners

who want to know which states have the best tax system in each region.

Tax Foundation | 19

Comparing States without a Tax. One problem associated with a relative scale is that it is mathematically

impossible to compare states with a given tax to states that do not have the tax. As a zero rate is the low-

est possible rate and the most neutral base, since it creates the most favorable tax climate for economic

growth, those states with a zero rate on individual income, corporate income, or sales gain an immense

competitive advantage. Therefore, states without a given tax generally receive a 10, and the Index mea-

sures all the other states against each other.

Three notable exceptions to this rule exist. The rst is in Washington, Tennessee, and Texas, which do not

have taxes on wage income but do apply their gross receipts taxes to S corporations. (Washington and

Texas also apply these to limited liability corporations.) Because these entities are generally taxed through

the individual code, these three states do not score perfectly in the individual income tax component.

The second exception is found in Nevada, where a payroll tax (for purposes other than unemployment

insurance) is also included in the individual income tax component. The nal exception is in zero sales tax

states–Alaska, Montana, New Hampshire, Oregon, and Delaware–which do not have general sales taxes

but still do not score a perfect 10 in that component section because of excise taxes on gasoline, beer,

spirits, and cigarettes, which are included in that section. Alaska, moreover, forgoes a state sales tax, but

does permit local option sales taxes.

Normalizing Final Scores. Another problem with using a relative scale within the components is that the

average scores across the ve components vary. This alters the value of not having a given tax across

major indices. For example, the unadjusted average score of the corporate income tax component is 6.71

while the average score of the sales tax component is 5.39.

In order to solve this problem, scores on the ve major components are “normalized,” which brings the

average score for all of them to 5.00, excluding states that do not have the given tax. This is accomplished

by multiplying each state’s score by a constant value.

Once the scores are normalized, it is possible to compare states across indices. For example, because of

normalization, it is possible to say that Connecticut’s score of 4.94 on corporate income taxes is better

than its score of 3.53 on the individual income tax.

Time Frame Measured by the Index (Snapshot Date)

Starting with the 2006 edition, the Index has measured each state’s business tax climate as it stands at

the beginning of the standard state scal year, July 1. Therefore, this edition is the 2024 Index and rep-

resents the tax climate of each state as of July 1, 2023, the rst day of scal year 2024 for most states.

District of Columbia

The District of Columbia (D.C.) is only included as an exhibit and its scores and “phantom ranks” offered

do not affect the scores or ranks of other states.

20 | State Business Tax Climate Index 2024

Past Rankings and Scores

This report includes 2014-2023 Index rankings that can be used for comparison with the 2024 rankings

and scores. These can differ from previously published Index rankings and scores due to the enactment

of retroactive statutes, backcasting of the above methodological changes, and corrections to variables

brought to our attention since the last report was published. The scores and rankings in this report are

denitive.

Corporate Tax

This component measures the impact of each state’s principal tax on business activities and accounts

for 20.9 percent of each state’s total score. It is well established that the extent of business taxation can

affect a business’s level of economic activity within a state. For example, Newman (1982) found that

differentials in state corporate income taxes were a major factor inuencing the movement of industry to

Southern states. Two decades later, with global investment greatly expanded, Agostini and Tulayasathien

(2001) determined that a state’s corporate tax rate is the most relevant tax in the investment decisions of

foreign investors.

Most states levy standard corporate income taxes on prot (gross receipts minus expenses). Some

states, however, problematically impose taxes on the gross receipts of businesses with few or no deduc-

tions for expenses. Between 2005 and 2010, for example, Ohio phased in the Commercial Activities Tax

(CAT), which has a rate of 0.26 percent. Washington has the Business and Occupation (B&O) Tax, which

is a multi-rate tax (depending on industry) on the gross receipts of Washington businesses. Delaware has

a similar Manufacturers’ and Merchants’ License Tax, as does Tennessee with its Business Tax, Virginia

with its locally-levied Business/Professional/Occupational License (BPOL) tax, and West Virginia with its

local Business & Occupation (B&O) tax. Texas also added the Margin Tax, a complicated gross receipts

tax, in 2007, Nevada adopted the gross receipts-based multi-rate Commerce Tax in 2015, and Oregon

implemented a new modied gross receipts tax in 2020. However, in 2011, Michigan passed a signicant

corporate tax reform that eliminated the state’s modied gross receipts tax and replaced it with a 6 per-

cent corporate income tax, effective January 1, 2012.

The previous tax had been in place since 2007, and

Michigan’s repeal followed others in Kentucky (2006) and New Jersey (2006). Several states contemplat-

ed gross receipts taxes in 2017, but none were adopted.

Since gross receipts taxes and corporate income taxes are levied on different bases, we separately com-

pare gross receipts taxes to each other, and corporate income taxes to each other, in the Index.

For states with corporate income taxes, the corporate tax rate subindex is calculated by assessing three

key areas: the top tax rate, the level of taxable income at which the top rate kicks in, and the number of

brackets. States that levy neither a corporate income tax nor a gross receipts tax achieve a perfectly neu-

tral system in regard to business income and thus receive a perfect score.

States that do impose a corporate tax generally will score well if they have a low rate. States with a high

rate or a complex and multiple-rate system score poorly.

13 See Mark Robyn, “Michigan Implements Positive Corporate Tax Reform,” Tax Foundation, Feb. 10, 2012.

Tax Foundation | 21

Table 3. Corporate Tax Component

of the State Business Tax Climate Index (2014–2024)

Prior Year Ranks 2023 2024

2023-2024

Change

State 2014 2015 2016 2017 2018 2019 2020 2021 2022 Rank Score Rank Score Rank Score

Alabama 23 24 22 14 21 22 24 24 17 18 5.51 19 5.46 -1 -0.05

Alaska 25 26 26 25 26 27 22 23 24 24 5.22 26 5.16 -2 -0.06

Arizona 22 22 20 19 14 16 21 22 23 23 5.29 22 5.30 1 0.01

Arkansas 36 36 38 38 38 39 33 33 29 29 4.96 28 5.12 1 0.16

California 29 31 33 32 31 37 27 27 46 46 4.05 45 4.06 1 0.01

Colorado 19 13 15 18 18 6 7 9 6 7 6.00 7 5.98 0 -0.02

Connecticut 27 29 31 31 30 33 26 26 27 28 5.09 30 4.94 -2 -0.15

Delaware 50 50 50 50 50 50 50 50 50 50 2.40 50 2.35 0 -0.06

Florida 13 14 16 19 19 11 9 6 7 10 5.77 11 5.81 -1 0.04

Georgia 9 10 10 11 10 8 6 7 8 8 5.90 9 5.91 -1 0.01

Hawaii 5 5 4 6 11 12 17 19 19 19 5.46 18 5.47 1 0.01

Idaho 17 21 21 23 23 26 28 28 28 27 5.10 27 5.14 0 0.05

Illinois 43 44 32 24 35 36 35 35 38 38 4.46 43 4.16 -5 -0.30

Indiana 28 27 23 22 22 19 11 12 11 11 5.73 12 5.74 -1 0.01

Iowa 48 48 48 48 48 46 48 46 33 34 4.84 29 5.09 5 0.24

Kansas 35 35 37 37 37 31 34 30 21 21 5.37 21 5.32 0 -0.05

Kentucky 24 25 25 26 24 15 13 15 15 15 5.60 15 5.61 0 0.01

Louisiana 16 20 35 39 39 34 36 34 34 32 4.87 34 4.81 -2 -0.06

Maine 41 42 41 40 40 32 37 36 35 35 4.58 35 4.58 0 0.01

Maryland 14 15 17 21 20 25 31 32 32 33 4.85 33 4.86 0 0.01

Massachusetts 32 34 36 35 34 38 38 37 36 36 4.55 36 4.55 0 0.01

Michigan 8 8 8 9 8 13 18 20 20 20 5.42 20 5.43 0 0.01

Minnesota 40 40 42 42 41 43 45 43 43 43 4.13 47 3.83 -4 -0.31

Mississippi 10 11 12 12 12

14 10 13 13 13 5.64 8 5.95 5 0.32

Missouri 4 4 3 5 5 4 3 3 3 3 6.76 3 6.55 0 -0.21

Montana 15 16 18 13 13 9 20 21 22 22 5.34 23 5.28 -1 -0.05

Nebraska 34 28 27 27 27 28 30 31 31 30 4.92 31 4.91 -1 -0.01

Nevada 1 1 24 33 32 21 25 25 26 26 5.18 25 5.18 1 0.01

New Hampshire 47 47 47 47 43 45 42 44 44 44 4.10 44 4.11 0 0.01

New Jersey 37 37 39 41 44 49 49 48 48 48 3.50 48 3.50 0 0.00

New Mexico 33 33 30 29 25 23 23 11 12 12 5.72 13 5.66 -1 -0.05

New York 21 19 11 8 7 18 14 16 25 25 5.19 24 5.20 1 0.01

North Carolina 26 23 7 4 3 3 4 4 4 5 6.15 5 6.16 0 0.01

North Dakota 20 18 14 16 16 17 19 8 9 9 5.89 10 5.84 -1 -0.05

Ohio 45 43 46 46 47 42 41 40 39 39 4.43 39 4.44 0 0.01

Oklahoma 11 9 9 10 9 20 8 10 10 4 6.20 4 6.21 0 0.01

Oregon 30 32 34 34 33 29 32 49 49 49 2.79 49 2.73 0 -0.06

Pennsylvania 42 41 43 43 42 44 44 42 42 42 4.15 41 4.35 1 0.20

Rhode Island 38 38 29 30 29 35 40 39 40 40 4.39 40 4.40 0 0.01

South Carolina 12 12 13 15 15 5 5 5 5 6 6.04 6 6.05 0 0.01

South Dakota 1 1 1 1 1 1 1 1 1 1 10.00 1 10.00 0 0.00

Tennessee 44 45 44 44 45 48 47 45 45 45 4.06 42 4.32 3 0.25

Texas 49 49 49 49 49 47 46 47 47 47 3.98 46 3.99 1 0.01

Utah 6 6 5 3 4 7 12 14 14 14 5.63 14 5.62 0 -0.02

Vermont 39 39 40 36 36 40 43 41 41 41 4.31 38 4.45 3 0.14

Virginia 7 7 6 7 6 10 15 17 16 17 5.54 16 5.55 1 0.01

Washington 46 46 45 45 46 41 39 38 37 37 4.47 37 4.48 0 0.01

West Virginia 18 17 19 17 17 24 16 18 18 16 5.60 17 5.54 -1 -0.05

Wisconsin 31 30 28 28 28 30 29 29 30 31 4.88 32 4.88 -1 0.01

Wyoming 1 1 1 1 1 1 1 1 1 1 10.00 1 10.00 0 0.00

District of Columbia 37 37 37 26 26 24 27 27 28 29 5.03 30 5.04 -1 0.01

Note: A rank of 1 is best, 50 is worst. Rankings do not average to the total. States without a tax rank equally as 1. DC’s score and rank

do not affect other states. The report shows tax systems as of July 1, 2023 (the beginning of Fiscal Year 2024).

Source: Tax Foundation.

22 | State Business Tax Climate Index 2024

To calculate the parallel subindex for the corporate tax base, three broad areas are assessed: tax credits,

treatment of net operating losses, and an “other” category that includes variables such as conformity to

the Internal Revenue Code, protections against double taxation, and the taxation of “throwback” income,

among others. States that score well on the corporate tax base subindex generally will have few business

tax credits, generous carryback and carryforward provisions, deductions for net operating losses, confor-

mity to the Internal Revenue Code, and provisions that alleviate double taxation.

Corporate Tax Rate

The corporate tax rate subindex is designed to gauge how a state’s corporate income tax top marginal

rate, bracket structure, and gross receipts rate affect its competitiveness compared to other states, as the

extent of taxation can affect a business’s level of economic activity within a state (Newman 1982).

A state’s corporate tax is levied in addition to the federal corporate income tax of 21 percent, substantial-

ly reduced by the Tax Cuts and Jobs Act of 2017 from a graduated-rate tax with a top rate of 35 percent,

the highest rate among industrialized nations. Two states levy neither a corporate income tax nor a gross

receipts tax: South Dakota and Wyoming. These states automatically score a perfect 10 on this subindex.

Therefore, this section ranks the remaining 48 states relative to each other.

Top Tax Rate. New Jersey’s 11.5 percent rate (including a temporary and retroactive surcharge from 2020

to 2023) qualies for the worst ranking among states that levy one, followed by Minnesota’s 9.8 percent

rate. Other states with comparatively high corporate income tax rates are Alaska (9.4 percent), Pennsyl-

vania (8.99 percent), Maine (8.93 percent), and California (8.84 percent). By contrast, North Carolina’s rate

of 2.5 percent is the lowest nationally, followed by Missouri’s and Oklahoma’s (both at 4 percent), North

Dakota’s at 4.31 percent, and Colorado’s at 4.4 percent. Other states with comparatively low top corporate

tax rates are Utah (4.65 percent), Arizona and Indiana (both at 4.9 percent), and Kentucky, Mississippi, and

South Carolina, all at 5 percent.

Graduated Rate Structure. Two variables are used to assess the economic drag created by multiple-rate

corporate income tax systems: the income level at which the highest tax rate starts to apply and the num-

ber of tax brackets. Twenty-nine states and the District of Columbia have single-rate systems, and they

score best. Single-rate systems are consistent with the sound tax principles of simplicity and neutrality. In

contrast to the individual income tax, there is no meaningful “ability to pay” concept in corporate taxation.

Jeffery Kwall, the Kathleen and Bernard Beazley Professor of Law at Loyola University Chicago School of

Law, notes that

graduated corporate rates are inequitable—that is, the size of a corporation bears no necessary

relation to the income levels of the owners. Indeed, low-income corporations may be owned by

individuals with high incomes, and high-income corporations may be owned by individuals with

low incomes.

14 Jeffrey L. Kwall, “The Repeal of Graduated Corporate Tax Rates,” Tax Notes, June 27, 2011, 1395.

Tax Foundation | 23

A single-rate system minimizes the incentive for rms to engage in expensive, counterproductive tax plan-

ning to mitigate the damage of higher marginal tax rates that some states levy as taxable income rises.

The Top Bracket. This variable measures how soon a state’s tax system applies its highest corporate

income tax rate. The highest score is awarded to a single-rate system that has one bracket that applies

to the rst dollar of taxable income. Next best is a two-bracket system where the top rate kicks in at a

low level of income, since the lower the top rate kicks in, the more the system is like a at tax. States with

multiple brackets spread over a broad income spectrum are given the worst score.

Number of Brackets. An income tax system creates changes in behavior when the taxpayer’s income

reaches the end of one tax rate bracket and moves into a higher bracket. At such a break point, incentives

change, and as a result, numerous rate changes are more economically harmful than a single-rate struc-

ture. This variable is intended to measure the disincentive effect the corporate income tax has on rising

incomes. States that score the best on this variable are the 29 states–and the District of Columbia–that

have a single-rate system. Alaska’s 10-bracket system earns the worst score in this category. Other states

with multi-bracket systems include Arkansas (ve brackets) and Maine and New Jersey (four brackets).

Corporate Tax Base

This subindex measures the economic impact of each state’s denition of what should be subject to cor-

porate taxation.

The three criteria used to measure the competitiveness of each state’s corporate tax base are given equal

weight: the availability of certain credits, deductions, and exemptions; the ability of taxpayers to deduct

net operating losses; and a host of smaller tax base issues that combine to make up the other third of the

corporate tax base subindex.

Under a gross receipts tax, some of these tax base criteria (net operating losses and some corporate

income tax base variables) are replaced by the availability of deductions from gross receipts for employee

compensation costs and cost of goods sold. States are rewarded for granting these deductions because

they diminish the greatest disadvantage of using gross receipts as the base for corporate taxation: the

uneven effective tax rates that various industries pay, depending on how many levels of production are hit

by the tax.

Net Operating Losses. The corporate income tax is designed to tax only the prots of a corporation.

However, a yearly prot snapshot may not fully capture a corporation’s true protability. For example, a

corporation in a highly cyclical industry may look very protable during boom years but lose substantial

amounts during bust years. When examined over the entire business cycle, the corporation may actually

have an average prot margin.

The deduction for net operating losses (NOL) helps ensure that, over time, the corporate income tax is

a tax on average protability. Without the NOL deduction, corporations in cyclical industries pay much

higher taxes than those in stable industries, even assuming identical average prots over time. Simply put,

the NOL deduction helps level the playing eld among cyclical and noncyclical industries. Under the Tax

24 | State Business Tax Climate Index 2024

Cuts and Jobs Act, the federal government allows losses to be carried forward indenitely, though they

may only reduce taxable income by 80 percent in any given year. Because gross receipts taxes inherently

preclude the possibility of carrying net operating losses backward or forward, the Index treats states with

statewide gross receipts taxes as having the equivalent of no NOL carryback or carryforward provisions.

Number of Years Allowed for Carryback and Carryforward. 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 protability. Gen-

erally, states entered FY 2024 with better treatment of the carryforward (up to a maximum of 20 years)

than the carryback (up to a maximum of three years). States score well on the Index if they conform to the

new federal provisions or provide their own robust system of carryforwards and carrybacks.

Caps on the Amount of Carryback and Carryforward. When companies have a larger NOL than they can

deduct in one year, most states permit them to carry deductions of any amount back to previous years’

returns or forward to future returns. States that limit those amounts are ranked lower in the Index. Two

states, Idaho and Montana, limit the amount of carrybacks (to $100,000 and $500,000, respectively),

though they do better than many of their peers in offering any carryback provisions at all. Of states that

allow a carryforward of losses, only Illinois, New Hampshire, and Pennsylvania limit carryforwards. Illinois’

cap of $100,000 is a recent addition, intended to only apply to tax years 2021 through 2024. As a result,

these states score poorly on this variable.

Gross Receipts Tax Deductions. Proponents of gross receipts taxation invariably praise the steadier ow

of tax receipts into government coffers in comparison with the uctuating revenue generated by corporate

income taxes, but this stability comes at a great cost. The attractively low statutory rates associated with

gross receipts taxes are an illusion. Since gross receipts taxes are levied many times in the production

process, the effective tax rate on a product is much higher than the statutory rate would suggest. Effective

tax rates under a gross receipts tax vary dramatically by industry or individual business, a stark departure

from the principle of tax neutrality. Firms with few steps in their production chain are relatively lightly

taxed under a gross receipts tax, and vertically integrated, high-margin rms prosper, while rms with

longer production chains are exposed to a substantially higher tax burden. The pressure of this economic

imbalance often leads lawmakers to enact separate rates for each industry, an inevitably unfair and ine-

cient process.

Two reforms that states can make to mitigate this damage are to permit deductions from gross receipts

for employee compensation costs and cost of goods sold, effectively moving toward a regular corporate

income tax.

Delaware, Nevada, Ohio, Oregon, Tennessee, and Washington score the worst, because their gross re-

ceipts taxes do not offer full deductions for either the cost of goods sold or employee compensation.

Texas offers a deduction for either the cost of goods sold or employee compensation but not both. The

Virginia BPOL tax, the West Virginia B&O, and the Pennsylvania business privilege tax are not included in

this survey, because they are assessed at the local level and not levied uniformly across the state.

Tax Foundation | 25

Federal Income Used as State Tax Base. States that use federal denitions of income reduce the tax

compliance burden on their taxpayers. Two states (Arkansas and Mississippi) do not conform to federal

denitions of corporate income, and they score poorly.

Allowance of Federal ACRS and MACRS Depreciation. The vast array of federal depreciation schedules is,

by itself, a tax complexity nightmare for businesses. The specter of having 50 different schedules would

be a disaster from a tax complexity standpoint. This variable measures the degree to which states have

adopted the federal Accelerated Cost Recovery System (ACRS) and Modied Accelerated Cost Recovery

System (MACRS) depreciation schedules. One state (California) adds complexity by failing to fully con-

form to the federal system.

Deductibility of Depletion. The deduction for depletion works similarly to depreciation, but it applies to

natural resources. As with depreciation, tax complexity would be staggering if all 50 states imposed their

own depletion schedules. This variable measures the degree to which states have adopted the federal de-

pletion schedules. Thirteen states are penalized because they do not fully conform to the federal system:

Alaska, California, Delaware, Iowa, Louisiana, Maryland, Minnesota, Mississippi, New Hampshire, North

Carolina, Oklahoma, Oregon, and Tennessee.

Alternative Minimum Tax. The federal Alternative Minimum Tax (AMT) was created to ensure that all

taxpayers paid some minimum level of taxes every year. Unfortunately, it does so by creating a parallel tax

system to the standard corporate income tax code. Evidence shows that the AMT does not increase e-

ciency or improve fairness in any meaningful way. It nets little money for the government, imposes com-

pliance costs that in some years are actually larger than collections, and encourages rms to cut back or

shift their investments (Chorvat and Knoll, 2002). As such, states that have mimicked the federal AMT put

themselves at a competitive disadvantage through needless tax complexity.

Four states have an AMT on corporations and thus score poorly: California, Kentucky, Minnesota, and New

Hampshire.

Deductibility of Taxes Paid. This variable measures the extent of double taxation on income used to pay

foreign taxes, i.e., paying a tax on money the taxpayer has already mailed to foreign taxing authorities.

States can avoid this double taxation by allowing the deduction of taxes paid to foreign jurisdictions.

Twenty-three states allow deductions for foreign taxes paid and score well. The remaining states with

corporate income taxation do not allow deductions for foreign taxes paid and thus score poorly.

Indexation of the Tax Code. For states that have multiple-bracket corporate income taxes, it is important

to index the brackets for ination. That prevents de facto tax increases on the nominal increase in income

due to ination. Put simply, this “ination tax” results in higher tax burdens on taxpayers, usually without

their knowledge or consent. All 15 states with graduated corporate income taxes fail to index their tax

brackets: Alaska, Arkansas, Hawaii, Iowa, Kansas, Louisiana, Maine, Mississippi, Nebraska, New Jersey,

New Mexico, New York, North Dakota, Oregon, and Vermont.

26 | State Business Tax Climate Index 2024

Throwback. 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. Generally, states require a

company with nexus (that is, sucient connection to the state to justify the state’s power to tax its in-

come) to apportion its income to the state based on some ratio of the company’s in-state property, payroll,

and sales compared to its total property, payroll, and sales.

Among the 50 states, there is little harmony in apportionment formulas. Many states weight the three

factors equally while others weight the sales factor more heavily or haved transitioned to a single sales

factor formula (a recent trend in state tax policy). Since many businesses make sales into states where

they do not have nexus, businesses can end up with “nowhere income,” income that is not taxed by any

state. To counter this phenomenon, many states have adopted what are called throwback rules because

they identify nowhere income and throw it back into a state where it will be taxed, even though it was not

earned in that state.

Throwback and throwout rules for sales of tangible property add yet another layer of tax complexity. Since

two or more states can theoretically lay claim to “nowhere” income, rules have to be created and enforced

to decide who gets to tax it. States with corporate income taxation are almost evenly divided between

those with and without throwback rules. Twenty-nine states do not have them, while 21 states and the

District of Columbia do.

Section 168(k) Expensing. Because corporate income taxes are intended to fall on net income, they

should include deductions for business expenses—including investment in machinery and equipment.

Historically, however, businesses have been required to depreciate the value of these purchases over time.

In recent years, the federal government offered “bonus depreciation” to accelerate the deduction for these

investments, and under the Tax Cuts and Jobs Act, investments in machinery and equipment are fully

deductible in the rst year, a policy known as “full expensing.” This provision is set to expire in 2027 and

has already started to phase out. Sixteen states follow the federal government in offering the 80 percent

write-off of eligible property, while three offer “bonus depreciation” short of the federal amount. Oklahoma

and Mississippi are the only two states that have transitioned to permanent full expensing.

Net Interest Limitation. Federal law now restricts the deduction of business interest, limiting the deduc-

tion to 30 percent of modied income, with the ability to carry the remainder forward to future tax years.

This change was intended to eliminate the bias in favor of debt nancing (over equity nancing) in the

federal code, but particularly when states adopt this limitation without incorporating its counterbalancing

provision, full expensing, the result is higher investment costs. Thirty-three states and the District of Co-

lumbia conform to the net interest limitation.

Inclusion of GILTI. Historically, states have largely avoided taxing international income. Following federal

tax reform, however, some states have latched onto the federal provision for the taxation of GILTI, intend-

ed as a guardrail for the new federal territorial system of taxation, as a means to broaden their tax bases

to include foreign business activity. States that tax GILTI are penalized in the Index, while states receive

partial credit for moderate taxation of GILTI (for instance, by adopting the Section 250 deduction) and are

rewarded for decoupling or almost fully decoupling from GILTI (by, for instance, treating it as largely-de-

ductible foreign dividend income in addition to providing the Section 250 deduction).

Tax Foundation | 27

Tax Credits

Many states provide tax credits that lower the effective tax rates for certain industries and investments,

often for large rms from out of state that are considering a move. Policymakers create these deals under

the banner of job creation and economic development, but the truth is that if a state needs to offer such

packages, it is most likely covering for a bad business tax climate. Economic development and job cre-

ation tax credits complicate the tax system, narrow the tax base, drive up tax rates for companies that do

not qualify, distort the free market, and often fail to achieve economic growth.

A more effective approach is to systematically improve the business tax climate for the long term. Thus,

this component rewards those states that do not offer the following tax credits, with states that offer

them scoring poorly.

Investment Tax Credits. Investment tax credits typically offer an offset against tax liability if the compa-

ny invests in new property, plants, equipment, or machinery in the state offering the credit. Sometimes,

the new investment will have to be “qualied” and approved by the state’s economic development oce.

Investment tax credits distort the market by rewarding investment in new property as opposed to the reno-

vation of old property.

Job Tax Credits. Job tax credits typically offer an offset against tax liability if the company creates a spec-

ied number of jobs over a specied period of time. Sometimes, the new jobs will have to be “qualied”

and approved by the state’s economic development oce, allegedly to prevent rms from claiming that

jobs shifted were jobs added. Even if administered eciently, job tax credits can misre in a number of

ways. They induce businesses whose economic position would be best served by spending more on new

equipment or marketing to hire new employees instead. They also favor businesses that are expanding

anyway, punishing rms that are already struggling. Thus, states that offer such credits score poorly on

the Index.

Research and Development (R&D) Tax Credits. Research and development tax credits reduce the amount

of tax due by a company that invests in “qualied” research and development activities. The theoretical

argument for R&D tax credits is that they encourage the kind of basic research that is not economical-

ly justiable 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 dicult to assess–far outweigh the potential benets. Thus, states

that offer such credits score poorly on the Index.

15 For example, see Alan Peters and Peter Fisher, “The Failures of Economic Development Incentives,” Journal of the American Planning Association 70(1), Winter

2004, 27; and William F. Fox and Matthew N. Murray, “Do Economic Effects Justify the Use of Fiscal Incentives?” Southern Economic Journal 71(1), July 2004, 78.

28 | State Business Tax Climate Index 2024

Individual Income Tax

The individual income tax component, which accounts for 29.8 percent of each state’s total Index score, is

important to business because a signicant number of businesses, including sole proprietorships, part-

nerships, and S corporations, report their income through the individual income tax code.

Taxes can have a signicant impact on an individual’s decision to become a self-employed entrepreneur.

Gentry and Hubbard (2004) found, “While the level of the marginal tax rate has a negative effect on en-

trepreneurial entry, the progressivity of the tax also discourages entrepreneurship, and signicantly so

for some groups of households.” Using education as a measure of potential for innovation, Gentry and

Hubbard found that a progressive tax system “discourages entry into self-employment for people of all

educational backgrounds.” Moreover, citing Carroll, Holtz-Eakin, Rider, and Rosen (2000), Gentry and Hub-

bard contend, “Higher tax rates reduce investment, hiring, and small business income growth” (p. 7). Less

neutral individual income tax systems, therefore, hurt entrepreneurship and a state’s business tax climate.

Another important reason individual income tax rates are critical for businesses is the cost of labor. La-

bor typically constitutes a major business expense, so anything that hurts the labor pool will also affect

business decisions and the economy. Complex, poorly designed tax systems that extract an inordinate

amount of tax revenue reduce both the quantity and quality of the labor pool. This is consistent with the

ndings of Wasylenko and McGuire (1985), who found that individual income taxes affect businesses

indirectly by inuencing the location decisions of individuals. A progressive, multi-rate income tax exacer-

bates this problem by increasing the marginal tax rate at higher levels of income, continually reducing the

value of work vis-à-vis the value of leisure.

For example, suppose a worker has to choose between one hour of additional work worth $10 and one

hour of leisure which to him is worth $9.50. A rational person would choose to work for another hour. But

if a 10 percent income tax rate reduces the after-tax value of labor to $9, then a rational person would stop

working and take the hour to pursue leisure. Additionally, workers earning higher wages–$30 per hour,

for example–who face progressively higher marginal tax rates–20 percent, for instance–are more likely

to be discouraged from working additional hours. In this scenario, the worker’s after-tax wage is $24 per

hour; therefore, those workers who value leisure more than $24 per hour will choose not to work. Since the

after-tax wage is $6 lower than the pretax wage in this example, compared to only $1 lower in the previous

example, more workers will choose leisure. In the aggregate, the income tax reduces the available labor

supply.

The individual income tax rate subindex measures the impact of tax rates on the marginal dollar of individ-

ual income using three criteria: the top tax rate, the graduated rate structure, and the standard deductions

and exemptions which are treated as a zero percent tax bracket. The rates and brackets used are for a

single taxpayer, not a couple ling a joint return.

The individual income tax base subindex takes into account measures enacted to prevent double taxa-

tion, whether the code is indexed for ination, and how the tax code treats married couples compared to

singles. States that score well protect married couples from being taxed more severely than if they had

16 See Edward C. Prescott, “Why Do Americans Work So Much More than Europeans?” Federal Reserve Bank of Minneapolis Quarterly Review, July 2004. See also J.

Scott Moody and Scott A. Hodge, “Wealthy Americans and Business Activity,” Tax Foundation, Aug. 1, 2004.

Tax Foundation | 29

Table 4. Individual Income Tax Component

of the State Business Tax Climate Index (2014–2024)

Prior Year Ranks 2023 2024

2023-2024

Change

State 2014 2015 2016 2017 2018 2019 2020 2021 2022 Rank Score Rank Score Rank Score

Alabama 23 25 25 25 25 31 31 29 28 30 4.89 33 4.81 -3 -0.08

Alaska 1 1 1 1 1 1 1 1 1 1 10.00 1 10.00 0 0.00

Arizona 22 24 18 19 19 19 17 18 18 16 5.84 9 6.43 7 0.59

Arkansas 34 36 37 40 40 40 40 42 38 37 4.48 37 4.53 0 0.05

California 50 50 50 50 50 49 49 50 49 49 2.06 49 2.29 0 0.23

Colorado 15 14 14 14 14 13 13 13 14 14 5.89 13 5.84 1 -0.04

Connecticut 42 42 46 47 47 43 45 47 47 47 3.41 46 3.53 1 0.12

Delaware 43 43 42 44 44 44 44 44 44 44 3.81 43 3.77 1 -0.04

Florida 1 1 1 1 1 1 1 1 1 1 10.00 1 10.00 0 0.00

Georgia 33 35 35 35 35 37 36 36 35 35 4.72 35 4.64 0 -0.08

Hawaii 47 47 47 38 38 47 47 46 46 46 3.46 47 3.45 -1 -0.01

Idaho 20 21 23 24 24 23 25 24 20 19 5.32 17 5.56 2 0.24

Illinois 10 15 11 11 13 14 14 12 13 13 5.90 14 5.81 -1 -0.09

Indiana 14 13 15 15 15 15 15 14 15 15 5.84 16 5.76 -1 -0.08

Iowa 41 41 41 42 42 42 41 40 40 40 4.26 22 5.11 18 0.84

Kansas 16 17 17 17 18 21 22 21 22 22 5.10 27 5.04 -5 -0.06

Kentucky 36 38 38 37 37 17 18 17 17 18 5.54 18 5.55 0 0.01

Louisiana 32 33 32 32 31 35 35 35 34 25 5.02 29 4.97 -4 -0.04

Maine 26 28 34 31 32 25 20 22 23 23 5.08 26 5.06 -3 -0.02

Maryland 44 44 43 46 46 45 43 45 45 45 3.66 45 3.68 0 0.02

Massachusetts 12 11 12 12 11 11 11 16 11 11 6.00 44 3.73 -33 -2.27

Michigan 13 12 13 13 12 12 12 11 12 12 5.97 12 5.92 0 -0.05

Minnesota 45 45 44 45 45 46 46 43 43 43 3.89 42 3.93 1 0.04

Mississippi 21 22 24 23 23

28 28 27 26 26 4.99 19 5.46 7 0.47

Missouri 31 32 31 33 33 27 23 20 21 21 5.15 20 5.21 1 0.06

Montana 18 19 20 20 20 22 24 23 24 24 5.07 28 5.00 -4 -0.07

Nebraska 38 34 33 34 34 30 30 30 29 32 4.87 32 4.84 0 -0.02

Nevada 1 1 1 1 1 5 5 5 5 5 8.50 5 8.36 0 -0.14

New Hampshire 9 9 9 9 9 9 9 9 9 9 6.35 10 6.28 -1 -0.07

New Jersey 48 48 48 48 48 50 50 49 48 48 2.09 48 2.39 0 0.31

New Mexico 19 20 22 22 22 26 27 26 36 36 4.54 36 4.57 0 0.03

New York 49 49 49 49 49 48 48 48 50 50 1.88 50 2.14 0 0.26

North Carolina 37 16 16 16 16 16 16 15 16 17 5.76 15 5.77 2 0.01

North Dakota 27 23 21 21 21 18 19 25 25 28 4.98 21 5.15 7 0.17

Ohio 46 46 45 43 43 41 42 41 41 41 4.23 40 4.25 1 0.02

Oklahoma 29 30 29 28 28 32 32 31 30 31 4.88 24 5.08 7 0.20

Oregon 35 37 36 36 36 38 39 38 42 42 4.00 41 3.96 1 -0.03

Pennsylvania 17 18 19 18 17 20 21 19 19 20 5.18 23 5.09 -3 -0.09

Rhode Island 25 27 27 27 27 24 26 32 31 33 4.82 31 4.88 2 0.06

South Carolina 30 31 30 30 30 34 34 34 33 27 4.98 30 4.93 -3 -0.04

South Dakota 1 1 1 1 1 1 1 1 1 1 10.00 1 10.00 0 0.00

Tennessee 8 8 8 8 8 8 8 8 6 6 8.28 6 8.18 0 -0.10

Texas 6 6 6 6 6 6 6 6 7 7 7.99 7 7.90 0 -0.09

Utah 11 10 10 10 10 10 10 10 10 10 6.11 11 6.08 -1 -0.03

Vermont 40 40 40 41 41 36 38 39 39 39 4.31 39 4.37 0 0.07

Virginia 28 29 28 29 29 33 33 33 32 34 4.79 34 4.72 0 -0.07

Washington 6 6 6 6 6 6 6 6 7 8 6.87 8 6.45 0 -0.42

West Virginia 24 26 26 26 26 29 29 28 27 29 4.89 25 5.06 4 0.17

Wisconsin 39 39 39 39 39

39 37 37 37 38 4.35 38 4.45 0 0.10

Wyoming 1 1 1 1 1 1 1 1 1 1 10.00 1 10.00 0 0.00

District of Columbia 47 47 46 49 49 47 47 48 48 48 2.62 48 2.94 0 0.33

Note: A rank of 1 is best, 50 is worst. Rankings do not average to the total. States without a tax rank equally as 1. DC’s score and rank

do not affect other states. The report shows tax systems as of July 1, 2023 (the beginning of Fiscal Year 2024).

Source: Tax Foundation.

30 | State Business Tax Climate Index 2024

led as two single individuals. They also protect taxpayers from double taxation by recognizing LLCs and

S corporations under the individual tax code and indexing their brackets, exemptions, and deductions for

ination.

States that do not impose an individual income tax generally receive a perfect score, and states that do

impose an individual income tax will generally score well if they have a at, low tax rate with few deduc-

tions and exemptions. States that score poorly have complex, multiple-rate systems.

The seven states without an individual income tax or non-UI payroll tax are, not surprisingly, the high-

est-scoring states on this component: Alaska, Florida, South Dakota, Tennessee, Texas, Washington, and

Wyoming. Nevada, which taxes wage income (but not unearned income) at a low rate under a non-UI

payroll tax, also does extremely well in this component of the Index. New Hampshire also scores well,

because while the state levies a tax on individual income in the form of interest and dividends, it does not

tax wages and salaries. Arizona, Colorado, Idaho, Illinois, Indiana, Kentucky, Massachusetts, Michigan,

Mississippi, North Carolina, Pennsylvania, and Utah score highly because they have a single, low tax rate.

Scoring near the bottom of this component are states that have high tax rates and very progressive

bracket structures. They generally fail to index their brackets, exemptions, and deductions for ination, do

not allow for deductions of foreign or other state taxes, penalize married couples ling jointly, and do not

recognize LLCs and S corporations.

Individual Income Tax Rate

The rate subindex compares the states that tax individual income after setting aside the four states that

do not and therefore receive perfect scores: Alaska, Florida, South Dakota, and Wyoming. Tennessee,

Texas, and Washington do not have an individual income tax, but they do tax S corporation income—and

Texas and Washington tax LLC income—through their gross receipts taxes and thus do not score perfectly

in this component. Nevada has a low-rate payroll tax on wage income. New Hampshire, meanwhile, does

not tax wage and salary income but does tax interest and dividend income.

Top Marginal Tax Rate. California has the highest top income tax rate of 13.3 percent. Other states with

high top rates include Hawaii (11.0 percent), New York (10.9 percent), New Jersey (10.75 percent), Oregon

(9.9 percent), Minnesota (9.85 percent), Massachusetts (9 percent with an additional 0.63 percent payroll

tax), and Vermont (8.75 percent).

States with the lowest top statutory rates are Arizona and North Dakota (both at 2.5 percent), Pennsylva-

nia (3.07 percent), Indiana (3.15 percent), Ohio (3.75 percent), New Hampshire (4 percent), Michigan (4.05

percent), Louisiana (4.25 percent), Colorado (4.4 percent), Kentucky (4.5 percent), Utah (4.65 percent), Ar-

kansas (4.7 percent), North Carolina and Oklahoma (both at 4.75 percent), and . Alabama and Mississippi

(both at 5 percent).

17 New Hampshire taxes only interest and dividends. To account for this, the Index converts the statutory tax rate into an effective rate as measured against the

typical state income tax base that includes wages. Under a typical income tax base with a at rate and no tax preferences, this is the statutory rate that would be

required to raise the same amount of revenue as the current system. Nationally, dividends and interest account for 19.6 percent of income. For New Hampshire,

its 4 percent rate was multiplied by 19.6 percent, yielding the equivalent rate of 0.78 percent.

Tax Foundation | 31

In addition to statewide income tax rates, some states allow local-level income taxes.

We represent

these as the average between the rate in the capital city and most populous city. In some cases, states

authorizing local-level income taxes still keep the level of income taxation modest overall. For instance,

Alabama, Indiana, Michigan, and Pennsylvania allow local income add-ons, but are still among the states

with the lowest overall rates.

Top Tax Bracket Threshold. This variable assesses the degree to which pass-through businesses are

subject to reduced after-tax return on investment as net income rises. States are rewarded for a top rate

that kicks in at lower levels of income, because doing so approximates a less distortionary at-rate sys-

tem. For example, Alabama has a progressive income tax structure with three income tax rates. However,

because Alabama’s top rate of 5 percent applies to all taxable income over $3,000, the state’s income tax

rate structure is nearly at.

States with at-rate systems score the best on this variable because their top rate kicks in at the rst

dollar of income (after accounting for the standard deduction and personal exemption). They are Arizona,

Colorado, Idaho, Illinois, Indiana, Kentucky, Massachusetts, Michigan, New Hampshire, North Carolina,

Pennsylvania, and Utah. (Mississippi also has a at rate and scores well, though that single rate kicks in

after $10,000 in income due to a “zero bracket.”) States with high kick-in levels score the worst. These

include New York ($25 million); California, Massachusetts, and New Jersey ($1 million); and Connecticut

($500,000).

Number of Brackets. The Index converts exemptions and standard deductions to a zero bracket before

tallying income tax brackets. From an economic perspective, standard deductions and exemptions are

equivalent to an additional tax bracket with a zero tax rate.

For example, Kansas has a standard deduction of $3,500 and a personal exemption of $2,250, for a com-

bined value of $5,750. Statutorily, Kansas has a top rate on all taxable income over $30,000 and two lower

brackets, one beginning at the rst dollar of income and another at $15,000, so it has an average bracket

width of $10,000. Because of its deduction and exemption, however, Kansas’s top rate actually kicks in at

$35,750 of income, and it has three tax brackets below that with an average width of $11,917. The size of

allowed standard deductions and exemptions varies considerably.

Pennsylvania scores the best in this variable by having only one tax bracket and no standard deduction).

States with only one brackets and a standard deduction (that is, at taxes with a standard deduction) are

Arizona, Colorado, Idaho, Illinois, Indiana, Kentucky, Michigan, New Hampshire, North Carolina, and Utah.

On the other end of the spectrum, Hawaii scores worst with 12 brackets, followed by California with 10

brackets, New York with 9 brackets, Maryland and New Jersey with 8 brackets, and Connecticut, Missouri,

and Montana, with 7 brackets.

18 Jared Walczak, Janelle Fritts, and Maxwell James, “Local Income Taxes: A Primer,” Tax Foundation, Feb. 23, 2023, https://taxfoundation.org/research/all/state/https://taxfoundation.org/research/all/state/

local-income-taxes-2023/local-income-taxes-2023/.

19 Some states offer tax credits in lieu of standard deductions or personal exemptions. Rather than reducing a taxpayer’s taxable income before the tax rates are

applied, tax credits are subtracted from a taxpayer’s tax liability. Like deductions and exemptions, the result is a lower nal income tax bill. In order to maintain

consistency within the component score, tax credits are converted into equivalent income exemptions or deductions.

32 | State Business Tax Climate Index 2024

Average Width of Brackets. Many states have several narrow tax brackets close together at the low end of

the income scale, including a zero bracket created by standard deductions and exemptions. Most taxpay-

ers never notice them, because they pass so quickly through those brackets and pay the top rate on most

of their income. On the other hand, some states impose ever-increasing rates throughout the income

spectrum, causing individuals and noncorporate businesses to alter their income-earning and tax-planning

behavior. This subindex penalizes the latter group of states by measuring the average width of the brack-

ets, rewarding those states where the average width is small, since in these states the top rate is levied on

most income, acting more like a at rate on all income.

Income Recapture. Connecticut and New York apply the rate of the top income tax bracket to previous

taxable income after the taxpayer crosses the top bracket threshold, while Arkansas imposes different

tax tables depending on the ler’s level of income. New York’s recapture provision is the most damaging

and results in an approximately $22,000 penalty for reaching the top bracket. Income recapture provisions

are poor policy, because they result in dramatically high marginal tax rates at the point of their kick-in, and

they are nontransparent in that they raise tax burdens substantially without being reected in the statutory

rate.

Individual Income Tax Base

States have different denitions of taxable income, and some create greater impediments to economic

activity than others. The base subindex gives a 40 percent weight to the double taxation of taxable in-

come and a 60 percent weight to an accumulation of other base issues, including indexation and marriage

penalties.

The states with no individual income tax of any kind achieve perfect neutrality. Tennessee and Texas, how-

ever, are docked slightly because they do not recognize LLCs or S corporations, and Nevada’s payroll tax

keeps the state from achieving a perfect store. New Hampshire only taxes interest and dividend income,

while Washington only taxes capital gains income. Of the other 43 states, Arizona, Idaho, Illinois, Maine,

Michigan, Missouri, Montana, and Utah have the best scores, avoiding many problems with the denition

of taxable income that plague other states. Meanwhile, states where the tax base is found to cause an

unnecessary drag on economic activity include New Jersey, Delaware, New York, California, Connecticut,

Ohio, Pennsylvania, and Maryland.

Marriage Penalty. A marriage penalty exists when a state’s standard deduction and tax brackets for mar-

ried taxpayers ling jointly are not double those for single lers. As a result, two singles (if combined) can

have a lower tax bill than a married couple ling jointly with the same income. This is discriminatory and

has serious business ramications. The top-earning 20 percent of taxpayers are dominated (85 percent)

by married couples. This same 20 percent also have the highest concentration of business owners of all

income groups (Hodge 2003A, Hodge 2003B). Because of these concentrations, marriage penalties have

the potential to affect a signicant share of pass-through businesses. Nineteen states and the District of

Columbia have marriage penalties built into their income tax brackets.

Tax Foundation | 33

Some states attempt to get around the marriage penalty problem by allowing married couples to le as

if they were singles or by offering an offsetting tax credit. While helpful in offsetting the dollar cost of the

marriage penalty, these solutions come at the expense of added tax complexity. Still, states that allow

married couples to le as singles do not receive a marriage penalty score reduction.

Double Taxation of Capital Income. Since most states with an individual income tax system mimic the

federal income tax code, they also possess its greatest aw: the double taxation of capital income.

Double taxation is brought about by the interaction between the corporate income tax and the individual

income tax. The ultimate source of most capital income–interest, dividends, and capital gains–is corpo-

rate prots. The corporate income tax reduces the level of prots that can eventually be used to generate

interest or dividend payments or capital gains.

This capital income must then be declared by the receiv-

ing individual and taxed. The result is the double taxation of this capital income—rst at the corporate

level and again on the individual level.

All states that tax wage income score poorly by this criterion. New Hampshire, which taxes individuals on

interest and dividends, scores somewhat better because it does not tax capital gains. Washington scores

even better on this metric because it taxes certain capital gains income but does not have a corporate

income tax, nor does it tax wage and salary income. Nevada’s payroll tax does not apply to capital income,

and thus scores perfectly on this measure, along with states that forgo all income taxation.

Federal Income Used as State Tax Base. Despite the shortcomings of the federal government’s denition

of income, states that use it reduce the tax compliance burden on taxpayers. Five states score poorly

because they do not conform to federal denitions of individual income: Alabama, Arkansas, Mississippi,

New Jersey, and Pennsylvania.

Alternative Minimum Tax

At the federal level, the Alternative Minimum Tax (AMT) was created in 1969 to ensure that all taxpayers

paid some minimum level of taxes every year. Unfortunately, it does so by creating a parallel tax sys-

tem to the standard individual income tax code. AMTs are an inecient way to prevent tax deductions

and credits from totally eliminating tax liability. As such, states that have mimicked the federal AMT put

themselves at a competitive disadvantage through needless tax complexity. Four states score poorly for

imposing an AMT on individuals: California, Colorado, Connecticut, and Minnesota.

Credit for Taxes Paid

This variable measures the extent of double taxation on income used to pay foreign and state taxes, i.e.,

paying the same taxes twice. States can avoid double taxation by allowing a credit for state taxes paid to

other jurisdictions.

20 Equity-related capital gains are not created directly by a corporation. Rather, they are the result of stock appreciations due to corporate activity such as increasing

retained earnings, increasing capital investments, or issuing dividends. Stock appreciation becomes taxable realized capital gains when the stock is sold by the

holder.

34 | State Business Tax Climate Index 2024

Recognition of Limited Liability Corporation and S Corporation Status

One important development in the federal tax system was the creation of the limited liability corporation

(LLC) and the S corporation. LLCs and S corporations provide businesses some of the benets of incorpo-

ration, such as limited liability, without the overhead of becoming a traditional C corporation. The prots of

these entities are taxed under the individual income tax code, which avoids the double taxation problems

that plague the corporate income tax system. Every state with a full individual income tax recognizes LLCs

to at least some degree, and all but Louisiana recognize S corporations in some fashion, but those that re-

quire additional state election or make the entity le through the state’s gross receipts tax (as in Delaware,

Ohio, Texas, and Washington) score poorly in this variable.

Indexation of the Tax Code

Indexing the tax code for ination is critical in order to prevent de facto tax increases on the nominal

increase in income due to ination. This “ination tax” results in higher tax burdens on taxpayers, usually

without their knowledge or consent. Three areas of the individual income tax are commonly indexed for

ination: the standard deduction, personal exemptions, and tax brackets. Twenty-ve states index all three

or do not impose an individual income tax; 15 states and the District of Columbia index one or two of the

three; and 10 states do not index at all.

Sales Taxes

Sales tax makes up 23.3 percent of each state’s Index score. 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 consider-

ation for many businesses. The sales tax can also hurt the business tax climate because as the sales tax

rate climbs, customers make fewer purchases or seek low-tax alternatives. As a result, business is lost to

lower-tax locations, causing lost prots, lost jobs, and lost tax revenue.

The effect of differential sales

tax rates among states or localities is apparent when a traveler crosses from a high-tax state to a neigh-

boring low-tax state. Typically, a vast expanse of shopping malls springs up along the border in the low-tax

jurisdiction.

On the positive side, sales taxes levied on goods and services at the point of sale to the end-user have at

least two virtues. First, they are transparent: the tax is never confused with the price of goods by custom-

ers. Second, since they are levied at the point of sale, they are less likely to cause economic distortions

than taxes levied at some intermediate stage of production (such as a gross receipts tax or sales taxes on

business-to-business transactions).

21 States have sought to limit this sales tax competition by levying a “use tax” on goods purchased out of state and brought into the state, typically at the same rate

as the sales tax. Few consumers comply with use tax obligations.

Tax Foundation | 35

Table 5. Sales Tax Component

of the State Business Tax Climate Index (2014–2024)

Prior Year Ranks 2023 2024

2023-2024

Change

State 2014 2015 2016 2017 2018 2019 2020 2021 2022 Rank Score Rank Score Rank Score

Alabama 50 50 50 49 49 50 50 50 50 50 2.54 50 2.62 0 0.08

Alaska 5 5 5 5 5 5 5 5 5 5 8.03 5 8.04 0 0.01

Arizona 43 43 43 42 43 40 39 40 40 41 4.08 41 4.07 0 -0.01

Arkansas 44 45 46 44 44 43 45 45 45 45 3.73 44 3.72 1 -0.01

California 46 46 45 45 46 47 47 47 47 47 3.35 47 3.35 0 -0.01

Colorado 37 37 37 37 37 37 37 36 38 40 4.22 40 4.19 0 -0.03

Connecticut 34 34 32 32 29 29 27 26 23 23 4.80 23 4.78 0 -0.02

Delaware 2 2 1 1 1 2 2 2 2 2 8.97 2 8.97 0 0.00

Florida 23 23 23 29 30 22 23 23 21 21 4.92 19 4.97 2 0.04

Georgia 27 27 34 31 32 30 31 30 30 32 4.57 28 4.72 4 0.15

Hawaii 31 31 27 26 26 32 30 29 29 28 4.63 26 4.75 2 0.12

Idaho 14 12 15 15 15 12 12 10 10 10 5.39 11 5.38 -1 0.00

Illinois 35 35 33 27 27 35 34 39 39 38 4.28 39 4.19 -1 -0.09

Indiana 21 22 18 9 9 13 20 20 19 19 5.00 18 4.99 1 -0.01

Iowa 18 18 20 20 19 18 15 15 15 15 5.16 15 5.16 0 0.00

Kansas 24 25 29 28 28 27 38 37 27 26 4.70 29 4.66 -3 -0.03

Kentucky 11 19 14 13 14 19 14 14 14 14 5.19 13 5.32 1 0.13

Louisiana 48 47 48 50 50 48 48 48 48 48 3.03 48 3.00 0 -0.02

Maine 7 8 8 8 8 9 8 8 8 8 5.82 8 5.82 0 0.00

Maryland 12 16 17 18 18 17 19 18 28 31 4.58 34 4.49 -3 -0.08

Massachusetts 19 21 19 19 11 11 13 13 13 13 5.21 14 5.21 -1 0.00

Michigan 10 10 9 10 12 14 11 11 11 11 5.37 12 5.36 -1 -0.01

Minnesota 30 33 26 25 25 26 29 28 32 30 4.58 31 4.57 -1 -0.01

Mississippi 38 39 39 39 39

36 25 25 25 25 4.77 25 4.76 0 -0.01

Missouri 22 24 25 23 24 25 24 24 26 27 4.70 30 4.64 -3 -0.05

Montana 3 3 3 3 3 3 3 3 3 3 8.91 3 8.91 0 0.00

Nebraska 15 13 12 12 21 8 9 9 9 9 5.51 9 5.46 0 -0.04

Nevada 41 41 41 41 42 45 44 44 44 44 3.81 45 3.70 -1 -0.11

New Hampshire 1 1 2 2 2 1 1 1 1 1 9.01 1 9.01 0 0.00

New Jersey 40 40 40 40 41 42 42 42 43 42 3.97 43 3.82 -1 -0.15

New Mexico 42 42 42 43 40 41 41 41 41 35 4.38 35 4.43 0 0.04

New York 45 44 44 46 45 44 43 43 42 43 3.89 42 4.04 1 0.15

North Carolina 26 17 21 21 20 24 21 21 20 20 4.94 20 4.92 0 -0.02

North Dakota 33 32 35 35 35 31 28 31 31 29 4.59 32 4.56 -3 -0.03

Ohio 29 29 30 33 31 28 33 34 35 36 4.38 36 4.37 0 -0.01

Oklahoma 36 36 36 36 36 39 40 38 37 39 4.24 38 4.22 1 -0.01

Oregon 4 4 4 4 4 4 4 4 4 4 8.81 4 8.70 0 -0.11

Pennsylvania 20 20 22 22 22 21 17 17 17 16 5.15 16 5.14 0 -0.01

Rhode Island 28 28 24 24 23 23 26 27 24 24 4.78 22 4.79 2 0.00

South Carolina 32 30 31 30 33 34 32 32 33 33 4.49 33 4.50 0 0.01

South Dakota 25 26 28 34 34 33 35 33 34 34 4.42 27 4.74 7 0.32

Tennessee 47 48 47 47 47 46 46 46 46 46 3.53 46 3.51 0 -0.01

Texas 39 38 38 38 38 38 36 35 36 37 4.35 37 4.34 0 -0.01

Utah 17 14 13 17 17 15 22 22 22 22 4.92 21 4.89 1 -0.03

Vermont 16 15 16 16 16 20 16 16 16 17 5.10 17 5.10 0 0.01

Virginia 9 9 10 11 10 10 10 12 12 12 5.23 10 5.42 2 0.19

Washington 49 49 49 48 48 49 49 49 49 49 2.96 49 2.92 0 -0.04

West Virginia 13 11 11 14 13 16 18 19 18 18 5.01 24 4.76 -6 -0.25

Wisconsin 8 7 7 7 7 7 7 7 7 7 6.00 6 6.01 1 0.01

Wyoming 6 6 6 6 6 6 6 6 6 6 6.02 7 5.99 -1 -0.03

District of Columbia 34 34 34 35 35 32 36 34 37 39 4.28 38 4.26 1 -0.01

Note: A rank of 1 is best, 50 is worst. Rankings do not average to the total. States without a tax rank equally as 1. DC’s score and rank

do not affect other states. The report shows tax systems as of July 1, 2023 (the beginning of Fiscal Year 2024).

Source: Tax Foundation.

36 | State Business Tax Climate Index 2024

The negative impact of sales taxes is well documented in the economic literature and through anecdotal

evidence. For example, Bartik (1989) found that high sales taxes, especially sales taxes levied on equip-

ment, had a negative effect on small business start-ups. Moreover, companies have been known to avoid

locating factories or facilities in certain states because the factory’s machinery would be subject to the

state’s sales tax.

States that create the most tax pyramiding and economic distortion, and therefore score the worst, are

states that levy a sales tax that generally allows no exclusions for business inputs.

Hawaii, New Mexico,

South Dakota, and Washington are examples of states that tax many business inputs. The ideal base for

sales taxation is all goods and services at the point of sale to the end-user.

Excise taxes are sales taxes levied on specic goods. Goods subject to excise taxation are typically (but

not always) perceived to be luxuries or vices, the latter of which are less sensitive to drops in demand

when the tax increases their price. Examples typically include tobacco, liquor, and gasoline. The sales tax

component of the Index takes into account the excise tax rates each state levies.

The ve states without a state sales tax–Alaska,

Delaware, Montana, New Hampshire, and Oregon–

achieve the best sales tax component scores. Among states with a sales tax, those with low general rates

and broad bases, and which avoid tax pyramiding, do best. Wisconsin, Wyoming, Maine, Nebraska, Virgin-

ia, Idaho, Michigan, and Kentucky all do well, with well-structured sales taxes and modest excise tax rates.

At the other end of the spectrum, Alabama, Washington, Louisiana, California, and Tennessee fare the

worst, imposing high rates and taxing a range of business inputs, such as utilities, services, manufactur-

ing, and leases—and maintaining relatively high excise taxes. Louisiana and Tennessee have the highest

combined state and local rates of 9.55 percent. In general, these states levy high sales tax rates that apply

to a wide range of business input items.

Sales Tax Rate

The tax rate itself is important, and a state with a high sales tax rate reduces demand for in-state retail

sales. Consumers will turn more frequently to cross-border or certain online purchases, leaving less busi-

ness activity in the state. This subindex measures the highest possible sales tax rate applicable to in-state

retail shopping and taxable business-to-business transactions. Four states–Delaware, Montana, New

Hampshire, and Oregon–do not have state or local sales taxes and thus are given a rate of zero. Alaska is

sometimes counted among states with no sales tax since it does not levy a statewide sales tax. However,

Alaska localities are allowed to levy sales taxes and the weighted statewide average of these taxes is 1.81

percent.

22 For example, in early 1993, Intel Corporation was considering California, New Mexico, and four other states as the site of a new billion-dollar factory. California

was the only one of the six states that levied its sales tax on machinery and equipment, a tax that would have cost Intel roughly $80 million. As Intel’s Bob Perlman

explained in testimony before a committee of the California state legislature, “There are two ways California’s not going to get the $80 million: with the factory or

without it.” California would not repeal the tax on machinery and equipment; New Mexico got the plant.

23 Sales taxes, which are ideally levied only on sales to nal-users, are a form of consumption tax. Consumption taxes that are levied instead at each stage of

production are known as value-added taxes (VAT) and are popular internationally. Theoretically a VAT can avoid the economically damaging tax pyramiding effect.

The VAT has never gained wide acceptance in the U.S., and only two states (Michigan and New Hampshire) have even attempted a VAT-like tax.

24 Alaska does authorize local governments to levy their own sales taxes, however, which is reected in the state’s sales tax component score.

Tax Foundation | 37

The Index measures the state and local sales tax rate in each state. A combined rate is computed by add-

ing the general state rate to the weighted average of the county and municipal rates.

State Sales Tax Rate. Of the 45 states (and the District of Columbia) with a statewide sales tax, Colorado’s

2.9 percent rate is the lowest. Five states have a 4 percent state-level sales tax: Alabama, Georgia, Hawaii,

New York, and Wyoming. At the other end is California with a 7.25 percent state sales tax, including a

mandatory statewide local add-on tax. Tied for second highest are Indiana, Mississippi, Rhode Island, and

Tennessee (all at 7 percent). Other states with high statewide rates include Minnesota (6.88 percent) and

Nevada (6.85 percent).

Local Option Sales Tax Rates. Thirty-eight states authorize the use of local option sales taxes at the

county and/or municipal level, and in some states, the local option sales tax signicantly increases the tax

rate faced by consumers.

Local jurisdictions in Colorado, for example, add an average of 4.89 percent in

local sales taxes to the state’s 2.9 percent state-level rate, bringing the total average sales tax rate to 7.79

percent. This may be an understatement in some localities with much higher local add-ons, but by weight-

ing each locality’s rate, the Index computes a statewide average of local rates that is comparable to the

average in other states.

Alabama and Louisiana have the highest average local option sales taxes (5.24 and 5.10 percent, respec-

tively), and in both states the average local option sales tax is higher than the state sales tax rate. Other

states with high local option sales taxes include Colorado (4.89 percent), New York (4.53 percent), and

Oklahoma (4.49 percent).

States with the highest combined state and average local sales tax rates are Louisiana and Tennessee

(both at 9.55 percent), Arkansas (9.44 percent), Washington (9.40 percent), and Alabama (9.24 percent).

At the low end are Alaska (1.81 percent), Hawaii (4.44 percent), Wisconsin (5.43 percent), Wyoming (5.44

percent), and Maine (5.5 percent).

Remote Seller Protections. With the Supreme Court’s elimination of the physical presence requirement for

imposing sales tax collection obligations, all states with sales taxes are now requiring remote sellers to

collect and remit sales tax. While most states have adopted safe harbors for small sellers and have a sin-

gle point of administration for all state and local sales taxes, a few diverge from these practices, imposing

substantial compliance costs on out-of-state retailers. Alabama, Alaska (which only has local sales taxes),

Colorado, and Louisiana lack uniform administration.

Sales Tax Base

The sales tax base subindex is computed according to ve features of each state’s sales tax:

• Whether the base includes a variety of business-to-business transactions such as machinery, raw ma-

terials, oce equipment, farm equipment, and business leases

25 The average local option sales tax rate is calculated as an average of local statutory rates, weighted by population. See Jared Walczak, “State and Local Sales Tax

Rates, Midyear 2023,” Tax Foundation, July 17, 2023,

https://taxfoundation.org/data/all/state/2023-sales-tax-rates-midyear/https://taxfoundation.org/data/all/state/2023-sales-tax-rates-midyear/.

38 | State Business Tax Climate Index 2024

• Whether the base includes goods and services typically purchased by consumers, such as groceries,

clothing, and gasoline

• Whether the base includes services, such as legal, nancial, accounting, medical, tness, landscaping,

and repair

• Whether the state leans on sales tax holidays, which temporarily exempt select goods from the sales

tax

• The excise tax rate on products such as gasoline, diesel fuel, tobacco, spirits, and beer

The top ve states on this subindex—New Hampshire, Delaware, Montana, Oregon, and Alaska—are the

ve states without a general state sales tax. However, none receives a perfect score because each levies

gasoline, diesel, tobacco, and beer excise taxes. States like Nebraska, Kansas, Wisconsin, Idaho, Missouri,

Wyoming, and Colorado achieve high scores on their tax base by avoiding the problems of tax pyramiding

and adhering to low excise tax rates, though of these, Colorado receives poor marks for a lack of local

base conformity.

States with the worst scores on the base subindex are Hawaii, South Dakota, Alabama, Washington, New

Jersey, California, and Maryland. Their tax systems hamper economic growth by including too many busi-

ness inputs, excluding too many consumer goods and services, and imposing excessive rates of excise

taxation.

Sales Tax on Business-to-Business Transactions (Business Inputs). When a business must pay sales

taxes on manufacturing equipment and raw materials, then that tax becomes part of the price of whatever

the business makes with that equipment and those materials. The business must then collect sales tax on

its own products, with the result that a tax is being charged on a price that already contains taxes. This tax

pyramiding invariably results in some industries being taxed more heavily than others, which violates the

principle of neutrality and causes economic distortions.

These variables are often inputs to other business operations. For example, a manufacturing rm will

count the cost of transporting its nal goods to retailers as a signicant cost of doing business. Most

rms, small and large alike, hire accountants, lawyers, and other professional service providers. If these

services are taxed, then it is more expensive for every business to operate.

To understand how business-to-business sales taxes can distort the market, suppose a sales tax were

levied on the sale of our to a bakery. The bakery is not the end-user because the our will be baked into

bread and sold to consumers. Economic theory is not clear as to which party will ultimately bear the

burden of the tax. The tax could be “passed forward” onto the customer or “passed backward” onto the

bakery.

Where the tax burden falls depends on how sensitive the demand for bread is to price changes.

If customers tend not to change their bread-buying habits when the price rises, then the tax can be fully

passed forward onto consumers. However, if the consumer reacts to higher prices by buying less, then the

tax will have to be absorbed by the bakery as an added cost of doing business.

26 See Timothy J. Besley and Harvey S. Rosen, “Sales Taxes and Prices: An Empirical Analysis,” NBER Working Paper No. 6667, July 1998.

Tax Foundation | 39

The hypothetical sales tax on all our sales would distort the market, because different businesses that

use our have customers with varying price sensitivity. Suppose the bakery is able to pass the entire tax

on our forward to the consumer but the pizzeria down the street cannot. The owners of the pizzeria

would face a higher cost structure and prots would drop. Since prots are the market signal for oppor-

tunity, the tax would tilt the market away from pizza-making. Fewer entrepreneurs would enter the pizza

business, and existing businesses would hire fewer people. In both cases, the sales tax charged to pur-

chasers of bread and pizza would be partly a tax on a tax because the tax on our would be built into the

price. Economists call this tax pyramiding, and public nance scholars overwhelmingly oppose applying

the sales tax to business inputs due to the resulting pyramiding and lack of transparency.

Besley and Rosen (1998) found that for many products, the after-tax price of the good increased by the

same amount as the tax itself. That means a sales tax increase was passed along to consumers on a one-

for-one basis. For other goods, however, they found that the price of the good rose by twice the amount of

the tax, meaning that the tax increase translates into an even larger burden for consumers than is typically

thought. Note that these inputs should only be exempt from sales tax if they are truly inputs into the pro-

duction process. If they are consumed by an end-user, they are properly includable in the state’s sales tax

base.

States that create the most tax pyramiding and economic distortion, and therefore score the worst, are

states that levy a sales tax that generally allows no exclusions for business inputs. Hawaii, New Mexico,

South Dakota, and Washington are examples of states that tax many business inputs.

Sales Tax Breadth. An economically neutral sales tax base includes all nal retail sales of goods and ser-

vices purchased by the end-users. In practice, however, states tend to include most goods, but relatively

few services, in their sales tax bases, a growing issue in an increasingly service-oriented economy. Pro-

fessor John Mikesell of Indiana University estimated that, nationwide, sales taxes extended to about 36

percent of all nal consumer transactions.

Exempting any goods or services narrows the tax base, drives

up the sales tax rate on those items still subject to tax, and introduces unnecessary distortions into the

market. A well-structured sales tax, however, does not fall upon business inputs. Therefore, states that tax

services that are business inputs score poorly on the Index, while states are rewarded for expanding their

base to include more nal retail sales of goods and services.

Sales Tax on Gasoline. There is no economic reason to exempt gasoline from the sales tax, as it is a nal

retail purchase by consumers. However, all but seven states do so. While all states levy an excise tax on

gasoline, these funds are often dedicated for transportation purposes, making them a form of user tax

distinct from the general sales tax. The ve states that fully include gasoline in their sales tax base (Flori-

da, Hawaii, Illinois, Indiana, and Michigan) get a better score. Several other states receive partial credit for

applying an ad valorem tax to gasoline sales, but at a different rate than the general sales tax. New York

currently applies local sales taxes only.

27 Jared Walczak, “State Sales Tax Breadth and Reliance, Fiscal Year 2021,” Tax Foundation, May 4, 2022, https://taxfoundation.org/state-sales-tax-base-reliance/https://taxfoundation.org/state-sales-tax-base-reliance/.

40 | State Business Tax Climate Index 2024

Sales Tax on Groceries. A well-structured sales tax includes all end-user goods in the tax base, to keep the

base broad, rates low, and prevent distortions in the marketplace. Many states exempt groceries to reduce

the incidence of the sales tax on low-income residents. Such an exemption, however, also benets grocers

and higher-income residents, and creates additional compliance costs due to the necessity of maintaining

complex, ever-changing lists of exempt and nonexempt products. Public assistance programs such as

the Women, Infants, and Children (WIC) program or the Supplement Nutrition Assistance Program (SNAP)

provide more targeted assistance than excluding groceries from the sales tax base. Thirteen states in-

clude or partially include groceries in their sales tax base.

Excise Taxes

Excise taxes are single-product sales taxes. Many of them are intended to reduce consumption of the

product bearing the tax. Others, like the gasoline tax, are often used to fund specic projects such as road

construction.

Gasoline and diesel excise taxes (levied per gallon) are usually justied as a form of user tax paid by

those who benet from road construction and maintenance. Though gas taxes–along with tolls–are one

of the best ways to raise revenue for transportation projects (roughly approximating a user fee for infra-

structure use), gasoline represents a large input for most businesses, so states that levy higher rates have

a less competitive business tax climate. State excise taxes on gasoline range from 77.9 cents in Califor-

nia to 8.95 cents per gallon in Alaska. The Index captures states’ base excise taxes in addition to other

gallonage-based fees and ad valorem taxes placed upon gasoline. General sales tax rates that apply to

gasoline are included in this calculated rate, but states which include, or partially include, gasoline in the

sales tax base are rewarded in the sales tax breadth measure.

Tobacco, spirits, and beer excise taxes can discourage in-state consumption and encourage consumers

to seek lower prices in neighboring jurisdictions (Moody and Warcholik, 2004). This impacts a wide swath

of retail outlets, such as convenience stores, that move large volumes of tobacco and beer products. The

problem is exacerbated for those retailers located near the border of states with lower excise taxes as

consumers move their shopping out of state—referred to as cross-border shopping.

There is also the growing problem of cross-border smuggling of products from states and areas that levy

low excise taxes on tobacco into states that levy high excise taxes on tobacco. This both increases crimi-

nal activity and reduces taxable sales by legitimate retailers.

States with the highest tobacco taxes per pack of 20 cigarettes are New York and Connecticut (at $4.35

each), Rhode Island ($4.25), Maryland ($3.75), Minnesota ($3.73), and Massachusetts ($3.51), while

states with the lowest tobacco taxes are Missouri (17 cents), Georgia (37 cents), North Dakota (44 cents),

North Carolina (45 cents), and South Carolina and Idaho (57 cents).

States with the highest beer taxes on a per gallon basis are Tennessee ($1.29), Alaska ($1.07), Alabama

($1.05), Georgia ($1.01), and Hawaii ($0.93), while states with the lowest beer taxes are Wyoming (2

28 See Adam Hoffer, “Cigarette Taxes and Cigarette Smuggling By State, 2020,” Tax Foundation, Dec. 6, 2022, https://taxfoundation.org/data/all/state/cigarette-tax-https://taxfoundation.org/data/all/state/cigarette-tax-

es-cigarette-smuggling-2022/es-cigarette-smuggling-2022/.

Tax Foundation | 41

cents), Missouri and Wisconsin (6 cents), and Colorado, Oregon, and Pennsylvania (each at 8 cents).

States with the highest spirits taxes per gallon are Washington ($36.55), Oregon ($22.86), and Virginia

($22.06), while states with the lowest spirits taxes are Wyoming and New Hampshire (both at $0), Missou-

ri ($2), and Colorado ($2.28).

Property Tax

The property tax component, which includes taxes on real and personal property, net worth, and the trans-

fer of assets, accounts for 14.9 percent of each state’s Index score.

When properly structured, property taxes exceed most other taxes in comporting with the benet principle

and can be fairly economically ecient. In the realm of public nance, they are often also prized for their

comparative transparency among taxes, though that transparency may contribute to the public’s generally

low view of property taxes. The Tax Foundation’s Survey of Tax Attitudes found that local property taxes

are perceived as the second most unfair state or local tax.

Property taxes matter to businesses, and the tax rate on commercial property is often higher than the tax

on comparable residential property. Additionally, many localities and states levy taxes on the personal

property or equipment owned by a business. They can be on assets ranging from cars to machinery and

equipment to oce furniture and xtures, but are separate from real property taxes, which are taxes on

land and buildings.

Businesses remitted over $839 billion in state and local taxes in scal year 2020, of which $330 billion

(39.2 percent) was for property taxes. The property taxes included tax on real, personal, and utility proper-

ty owned by businesses (Phillips et al. 2021). Since property taxes can be a large burden on business, they

can have a signicant effect on location decisions.

Mark, McGuire, and Papke (2000) nd taxes that vary from one location to another within a region could

be uniquely important determinants of intraregional location decisions. They nd that higher rates of

two business taxes–the sales tax and the personal property tax–are associated with lower employment

growth. They estimate that a tax hike on personal property of one percentage point reduces annual em-

ployment growth by 2.44 percentage points.

Bartik (1985), nding that property taxes are a signicant factor in business location decisions, estimates

that a 10 percent increase in business property taxes decreases the number of new plants opening in a

state by between 1 and 2 percent. Bartik (1989) backs up his earlier ndings by concluding that higher

property taxes negatively affect the establishment of small businesses. He elaborates that the particular-

ly strong negative effect of property taxes occurs because they are paid regardless of prots, and many

small businesses are not protable in their rst few years, so high property taxes would be more inuen-

tial than prot-based taxes on the start-up decision.

29 See Matt Moon, “How do Americans Feel about Taxes Today?” Tax Foundation’s 2009 Survey of U.S. Attitudes on Taxes, Government Spending and Wealth Distribu-

tion, Tax Foundation, Apr. 8, 2009.

42 | State Business Tax Climate Index 2024

Table 6. Property Tax Component

of the State Business Tax Climate Index (2014–2024)

Prior Year Ranks 2023 2024

2023-2024

Change

State 2014 2015 2016 2017 2018 2019 2020 2021 2022 Rank Score Rank Score Rank Score

Alabama 13 13 21 17 16 19 19 21 19 17 5.34 17 5.39 0 0.05

Alaska 29 30 19 25 40 23 25 24 25 25 5.18 27 5.18 -2 0.00

Arizona 11 11 11 11 11 11 11 10 11 11 5.77 11 5.77 0 0.00

Arkansas 23 24 27 24 24 27 27 27 28 26 5.18 24 5.22 2 0.04

California 16 16 13 14 13 13 14 14 14 18 5.34 22 5.24 -4 -0.09

Colorado 39 39 34 33 32 33 33 33 34 36 4.52 38 4.41 -2 -0.10

Connecticut 50 50 50 50 50 50 50 50 50 50 2.28 50 2.28 0 0.00

Delaware 5 5 5 7 7 4 4 4 4 4 6.29 6 6.05 -2 -0.24

Florida 22 23 17 12 12 12 12 12 12 12 5.56 13 5.52 -1 -0.05

Georgia 28 28 25 26 27 30 31 26 26 27 5.12 28 5.12 -1 -0.01

Hawaii 20 20 16 18 19 22 28 29 30 32 4.87 31 4.95 1 0.08

Idaho 2 2 2 2 2 3 3 3 3 3 6.46 2 6.55 1 0.09

Illinois 45 45 47 46 47 45 44 45 45 44 3.97 45 3.90 -1 -0.07

Indiana 3 3 3 3 3 2 2 2 1 2 6.47 3 6.50 -1 0.02

Iowa 37 37 38 39 37 38 38 38 39 40 4.30 41 4.22 -1 -0.08

Kansas 26 26 29 30 30 31 18 19 18 16 5.36 18 5.33 -2 -0.03

Kentucky 17 17 23 22 20 24 23 23 23 23 5.23 23 5.23 0 0.00

Louisiana 19 19 18 27 22 28 29 25 24 22 5.27 21 5.27 1 0.01

Maine 38 38 39 40 39 40 40 40 41 47 3.72 46 3.79 1 0.07

Maryland 41 41 41 41 42 41 41 43 43 42 4.16 42 4.13 0 -0.02

Massachusetts 44 44 45 45 45 46 45 46 46 46 3.81 47 3.72 -1 -0.09

Michigan 27 27 28 28 26 26 26 22 22 24 5.23 26 5.21 -2 -0.02

Minnesota 30 31 32 32 31 32 32 31 31 31 4.92 32 4.83 -1 -0.09

Mississippi 34 34 37 37 36

37 37 37 38 37 4.46 37 4.47 0 0.01

Missouri 12 12 14 10 9 9 9 8 7 7 6.04 9 5.88 -2 -0.17

Montana 15 15 22 19 28 20 21 20 21 20 5.31 19 5.30 1 -0.02

Nebraska 36 36 35 38 38 39 39 41 40 39 4.35 40 4.30 -1 -0.04

Nevada 7 7 7 6 6 5 6 5 5 5 6.20 4 6.17 1 -0.03

New Hampshire 43 43 44 44 44 47 46 47 47 43 4.02 43 4.06 0 0.05

New Jersey 48 48 48 47 49 44 47 44 44 45 3.88 44 3.91 1 0.04

New Mexico 1 1 1 1 1 1 1 1 2 1 6.52 1 6.57 0 0.05

New York 47 47 46 48 46 48 48 49 49 49 2.83 49 2.74 0 -0.09

North Carolina 10 10 26 29 29 14 13 13 13 13 5.54 12 5.57 1 0.03

North Dakota 4 4 4 4 4 6 7 11 10 9 5.92 7 6.01 2 0.09

Ohio 8 8 6 5 5 7 5 6 6 6 6.14 5 6.10 1 -0.04

Oklahoma 21 22 24 21 21 29 30 30 29 30 5.03 15 5.51 15 0.48

Oregon 18 18 10 16 17 16 20 16 17 19 5.32 20 5.29 -1 -0.03

Pennsylvania 32 32 30 15 15 17 15 15 15 15 5.46 14 5.51 1 0.05

Rhode Island 46 46 43 43 43 42 42 42 42 41 4.29 35 4.60 6 0.31

South Carolina 35 35 36 36 35 36 35 35 36 35 4.61 36 4.56 -1 -0.05

South Dakota 9 9 12 13 14 15 16 32 32 29 5.10 30 5.08 -1 -0.02

Tennessee 40 40 40 35 34 35 34 34 33 33 4.77 33 4.75 0 -0.02

Texas 33 33 33 34 33 34 36 36 37 38 4.36 39 4.39 -1 0.03

Utah 6 6 8 8 8 8 8 7 8 8 5.95 8 5.99 0 0.04

Vermont 49 49 49 49 48 49 49 48 48 48 3.23 48 3.18 0 -0.05

Virginia 24 25 20 23 23 25 24 28 27 28 5.12 29 5.08 -1 -0.03

Washington 14 14 15 20 18 18 17 18 20 21 5.31 25 5.21 -4 -0.10

West Virginia 25 21 9 9 10 10 10 9 9 10 5.81 10 5.79 0 -0.02

Wisconsin 31 29 31 31 25 21 22 17 16 14 5.48 16 5.49 -2 0.01

Wyoming 42 42 42 42 41 43 43 39 35 34 4.61 34 4.65 0 0.04

District of Columbia 46 50 40 47 48 48 48 49 49 49 2.84 50 2.68 -1 -0.16

Note: A rank of 1 is best, 50 is worst. Rankings do not average to the total. States without a tax rank equally as 1. DC’s score and rank

do not affect other states. The report shows tax systems as of July 1, 2023 (the beginning of Fiscal Year 2024).

Source: Tax Foundation.

Tax Foundation | 43

States which keep statewide property taxes low better position themselves to attract business invest-

ment. Localities competing for business can put themselves at a greater competitive advantage by keep-

ing personal property taxes low.

Taxes on capital stock, tangible and intangible property, inventory, real estate transfers, estates, inheri-

tance, and gifts are also included in the property tax component of the Index. The states that score the

best on property tax are New Mexico, Idaho, Indiana, Nevada, Ohio, Delaware, North Dakota, and Utah.

These states generally have low rates of property tax, whether measured per capita or as a percentage

of income. They also avoid distortionary taxes like estate, inheritance, gift, and other wealth taxes. States

that score poorly on the property tax component are Connecticut, New York, Vermont, Massachusetts,

Maine, Illinois, and New Jersey. These states generally have high property tax rates and levy several

wealth-based taxes.

The property tax portion of the Index is composed of two equally weighted subindices devoted to measur-

ing the economic impact of both rates and bases. The rate subindex consists of property tax collections

(measured both per capita and as a percentage of personal income) and capital stock taxes. The base

portion consists of dummy variables detailing whether each state levies wealth taxes such as inheritance,

estate, gift, inventory, intangible property, and other similar taxes.

Property Tax Rate

The property tax rate subindex consists of property tax collections per capita (40 percent of the subindex

score), property tax collections as a percent of personal income (40 percent of the subindex score), and

capital stock taxes (20 percent of the subindex score). The heavy weighting of tax collections is due to

their importance to businesses and individuals and their increasing size and visibility to all taxpayers. Both

are included to gain a better understanding of how much each state collects in proportion to its popula-

tion and its income. Tax collections as a percentage of personal income forms an effective rate that gives

taxpayers a sense of how much of their income is devoted to property taxes, and the per capita gure lets

them know how much in actual dollar terms they pay in property taxes compared to residents of other

states.

While these measures are not ideal–having effective tax rates of personal and real property for both busi-

nesses and individuals would be preferable–they are the best measures available due to the signicant

data constraints posed by property tax collections. Since a high percentage of property taxes are levied

on the local level, there are countless jurisdictions. The sheer number of different localities makes data

collection almost impossible. The few studies that tackle the subject use representative towns or cities

instead of the entire state. Thus, the best source for data on property taxes is the Census Bureau, because

it can compile the data and reconcile denitional problems.

States that maintain low effective rates and low collections per capita are more likely to promote growth

than states with high rates and collections.

30 Though not included directly in this Index for data availability reasons, tangible personal property taxes can also affect business decisions. For a comprehensive

review of these taxes and reform recommendations, see Joyce Errecart, Ed Gerrish, and Scott Drenkard, “States Moving Away from Taxes on Tangible Personal

Property,” Tax Foundation, Oct. 4, 2012.

44 | State Business Tax Climate Index 2024

Property Tax Collections per Capita. Property tax collections per capita are calculated by dividing prop-

erty taxes collected in each state (obtained from the Census Bureau) by population. The states with the

highest property tax collections per capita are New Jersey ($3,538), New York ($3,322), New Hampshire

($3,318), Connecticut ($3,288), and Vermont ($3,001). The states that collect the least per capita are Al-

abama ($660), Arkansas ($835), Oklahoma ($921), Tennessee ($929), New Mexico ($935), and Kentucky

($968).

Effective Property Tax Rate. Property tax collections as a percent of personal income are derived by

dividing the Census Bureau’s gure for total property tax collections by personal income in each state.

This provides an effective property tax rate. States with the highest effective rates and therefore the worst

scores are Maine (5.04 percent), Vermont (4.96 percent), New Jersey (4.76 percent), New Hampshire

(4.68 percent), New York (4.48 percent), and Connecticut (4.07 percent). States that score well with low

effective tax rates are Alabama (1.38 percent), Tennessee and Arkansas (each at 1.71 percent), Delaware

(1.75 percent), Oklahoma (1.77 percent), and Louisiana (1.89 percent).

Capital Stock Tax Rate. Capital stock taxes (sometimes called franchise taxes) are levied on the wealth

of a corporation, usually dened as net worth. They are often levied in addition to corporate income taxes,

adding a duplicate layer of taxation and compliance for many corporations. Corporations that nd them-

selves in nancial trouble must use their limited cash ow to pay their capital stock tax. In assessing

capital stock taxes, the subindex accounts for three variables: the capital stock tax rate; the maximum

payment; and whether any capital stock tax is imposed in addition to a corporate income tax, or whether

the business is liable for the higher of the two. The capital stock tax subindex is 20 percent of the total

rate subindex.

This variable measures the rate of taxation as levied by the 15 states with a capital stock tax. Legislators

have come to realize the damaging effects of capital stock taxes, and a handful of states are reducing or

repealing them. Kansas completed the phaseout of its tax in 2011. West Virginia and Rhode Island fully

phased out their capital stock taxes as of January 1, 2015, and Pennsylvania phased out its capital stock

tax in 2016. Oklahoma eliminated its capital stock tax in 2023. New York nished a phaseout of the state’s

capital stock tax as of January 1, 2021, but the legislature decided to temporarily reinstate the tax due to

coronavirus-related budget concerns. Similarly, Illinois had plans to begin a phaseout in 2020, completing

the process in 2024. After two years, Illinois reversed its phaseout plan and opted instead to freeze the

franchise tax exemption at $1,000. Connecticut plans to phase out its tax by January 1, 2024. States with

the highest capital stock tax rates include Connecticut (0.31 percent), Arkansas (0.30 percent), Louisiana

(0.275 percent), Massachusetts (0.26 percent), Tennessee (0.25 percent), and New York (0.1875 percent).

Maximum Capital Stock Tax Payment. Seven states mitigate the negative economic impact of the capital

stock tax by placing a cap on the maximum capital stock tax payment. These states are Alabama, Con-

necticut, Delaware, Georgia, Illinois, Nebraska, and New York, and among states with a capital stock tax,

they receive the highest score on this variable.

Capital Stock Tax versus Corporate Income Tax. Some states mitigate the negative economic impact of

the capital stock tax by allowing corporations to pay the higher of their capital stock tax or their corporate

tax. These states (Connecticut, Massachusetts, and New York) are given credit for this provision. States

Tax Foundation | 45

that do not have a capital stock tax get the best scores in this subindex while the states that force compa-

nies to pay both score the worst.

Property Tax Base

This subindex is composed of dummy variables listing the different types of property taxes each state

levies. Seven taxes are included and each is equally weighted. Delaware, Idaho, Indiana, Ohio, Alaska, New

Mexico, North Dakota, Nevada, New Hampshire, New Jersey, North Carolina, and Pennsylvania score the

best because they each only levy one of the seven taxes. Connecticut, Maryland, and Kentucky receive the

worst scores because they impose many of these taxes.

Business Tangible Property Tax. This variable rewards states which remove, or substantially remove,

business tangible personal property from their tax base. Taxes on tangible personal property, meaning

property that can be touched or moved (as opposed to real estate), are a source of tax complexity and

nonneutrality, incentivizing rms to change their investment decisions and relocate to avoid the tax. Eight

states (Delaware, Hawaii, Illinois, Iowa, New Jersey, New York, Ohio, and Pennsylvania) exempt all tangi-

ble personal property from taxation, while another ve states (Minnesota, New Hampshire, North Dakota,

Rhode Island, and South Dakota) exempt most such property from taxation except for select industries

that are centrally assessed. Wisconsin will exempt all tangible personal property from taxation as of 2024.

Intangible Property Tax. This dummy variable gives low scores to those states that impose taxes on

intangible personal property. Intangible personal property includes stocks, bonds, and other intangibles

such as trademarks. This tax can be highly detrimental to businesses that hold large amounts of their own

or other companies’ stock and that have valuable trademarks. Eight states levy this tax in various degrees:

Alabama, Iowa, Kentucky, Louisiana, Mississippi, South Dakota, Tennessee, and Texas.

Inventory Tax. Levied on the value of a company’s inventory, the inventory tax is especially harmful to

large retail stores and other businesses that store large amounts of merchandise. Inventory taxes are

highly distortionary, because they force companies to make decisions about production that are not en-

tirely based on economic principles but rather on how to pay the least amount of tax on goods produced.

Inventory taxes also create strong incentives for companies to locate inventory in states where they can

avoid these harmful taxes. Fourteen states levy some form of inventory tax.

Split Roll Taxation. In some states, different classes of property—like residential, commercial, industrial,

and agricultural property—face distinct tax burdens, either because they are taxed at different rates or

are exposed to different assessment ratios. When such distinctions exist, the state is said to have a split

(rather than unied) property tax roll. The Index assesses whether states utilize split roll taxation, which

tends to discriminate against business property, and what ratio exists between commercial and residen-

tial property taxation.

31 Some states, like Kentucky, are often considered not to impose an intangible property tax but continue to levy a low millage on nancial deposits.

46 | State Business Tax Climate Index 2024

Property Tax Limitation Regimes. Most states limit the degree to which localities can raise property

taxes, but these property tax limitation regimes vary dramatically. Broadly speaking, there are three types

of property tax limitations. Assessment limits restrict the rate at which a given property’s assessed value

can increase each year. (It often, but not always, resets upon sale or change of use, and sometimes resets

when substantial improvements are made.) Rate limits, as the name implies, either cap the allowable rate

or restrict the amount by which the rate can be raised in a given year. Finally, levy limits impose a restric-

tion on the growth of total collections (excluding those from new construction), implementing or necessi-

tating rate reductions if revenues exceed the allowable growth rate. Most limitation regimes permit voter

overrides. The Index penalizes states for imposing assessment limitations, which distort property taxa-

tion, leading to similar properties facing highly disparate effective rates of taxation and inuencing deci-

sions about property utilization. It also rewards states for adopting either a rate or levy limit, or both.

Asset Transfer Taxes (Estate, Inheritance, and Gift Taxes). Four taxes levied on the transfer of assets

are part of the property tax base. These taxes, levied in addition to the federal estate tax, all increase the

cost and complexity of transferring wealth and hurt a state’s business climate. These harmful effects can

be particularly acute in the case of small, family-owned businesses if they do not have the liquid assets

necessary to pay the estate’s tax liability.

The four taxes are real estate transfer taxes, estate taxes,

inheritance taxes, and gift taxes. Thirty-ve states and the District of Columbia levy taxes on the transfer

of real estate, adding to the cost of purchasing real property and increasing the complexity of real estate

transactions. This tax is harmful to businesses that transfer real property often.

The federal Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) lowered the federal

estate tax rate through 2009 and eliminated it entirely in 2010. Prior to 2001, most states levied an estate

tax that piggybacked on the federal system, because the federal tax code allowed individuals to take a dol-

lar-for-dollar tax credit for state estate taxes paid. In other words, states essentially received free tax col-

lections from the estate tax, and individuals did not object because their total tax liability was unchanged.

EGTRRA eliminated this dollar-for-dollar credit system, replacing it with a tax deduction.

Consequently, over the past decade, some states enacted their own estate tax while others repealed their

estate taxes. Some states have provisions reintroducing the estate tax if the federal dollar-for-dollar credit

system is revived. This would have happened in 2011, as EGTRRA expired and the federal estate tax re-

turned to pre-2001 levels. However, in late 2010, Congress reenacted the estate tax for 2011 and 2012 but

with higher exemptions and a lower rate than pre-2001 law and maintained the deduction for state estate

taxes. The tax reform law of 2017 raised the federal exemption still further. Thirty-eight states receive a

high score for either (1) remaining coupled to the federal credit and allowing their state estate tax to ex-

pire or (2) not enacting their own estate tax, including two which repealed their estate tax this year. Twelve

states and the District of Columbia have maintained an estate tax either by linking their tax to the pre-EG-

TRRA credit or by creating their own stand-alone system. These states score poorly.

32 For a summary of the effects of the estate tax on business, see Congressional Budget Oce, “Effects of the Federal Estate Tax on Farms and Small Businesses,”

July 2005. For a summary on the estate tax in general, see David Block and Scott Drenkard, “The Estate Tax: Even Worse Than Republicans Say,” Tax Foundation,

Sept. 4, 2012.

Tax Foundation | 47

Each year, some businesses, especially those that have not spent a sucient sum on estate tax planning

and on large insurance policies, nd themselves unable to pay their estate taxes, either federal or state.

Usually they are small- to medium-sized family-owned businesses where the death of the owner occa-

sions a surprisingly large tax liability.

Inheritance taxes are similar to estate taxes, but they are levied on the heir of an estate instead of on

the estate itself. 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. Six states have

inheritance taxes and are punished in the Index, because the inheritance tax causes economic distortions.

Maryland has both an estate tax and an inheritance tax, the only state to impose both after New Jersey

completed the repeal of its estate tax.

Connecticut is the only state with a gift tax, and it scores poorly. Gift taxes are designed to stop individu-

als’ attempts to avoid the estate tax by giving their estates away before they die. Gift taxes have a nega-

tive impact on a state’s business tax climate because they also heavily impact individuals who have sole

proprietorships, S corporations, and LLCs.

Unemployment Insurance Taxes

Unemployment insurance (UI) is a social insurance program jointly operated by the federal and state

governments. Taxes are paid by employers into the UI program to nance benets for workers recently

unemployed. Compared to the other major taxes assessed in the State Business Tax Climate Index, UI tax-

es are much less well-known. Every state has one, and all 50 of them are complex, variable-rate systems

that impose different rates on different industries and different bases depending upon such factors as the

health of the state’s UI trust fund.

One of the worst aspects of the UI tax system is that nancially troubled businesses, for which layoffs

may be a matter of survival, actually pay higher marginal rates as they are forced into higher tax rate

schedules. In the academic literature, this has long been called the “shut-down effect” of UI taxes: failing

businesses face climbing UI taxes, with the result that they fail sooner.

The unemployment insurance tax component of the Index consists of two equally weighted subindices,

one that measures each state’s rate structure and one that focuses on the tax base. Unemployment insur-

ance taxes comprise 11.1 percent of a state’s nal Index score.

Overall, the states with the least damaging UI taxes are Delaware, Oklahoma, Missouri, Florida, Mississip-

pi, North Carolina, and Michigan. Comparatively speaking, these states have rate structures with lower

minimum and maximum rates and a wage base at the federal level. In addition, they have simpler experi-

ence formulas and charging methods, and they have not complicated their systems with benet add-ons

and surtaxes.

33 See generally Joseph Bishop-Henchman, “Unemployment Insurance Taxes: Options for Program Design and Insolvent Trust Funds,” Tax Foundation, Oct. 17, 2011.

48 | State Business Tax Climate Index 2024

Table 7. Unemployment Insurance Tax Component

of the State Business Tax Climate Index (2014–2024)

Prior Year Ranks 2023 2024

2023-2024

Change

State 2014 2015 2016 2017 2018 2019 2020 2021 2022 Rank Score Rank Score Rank Score

Alabama 23 25 26 14 11 12 18 15 18 19 5.15 15 5.53 4 0.38

Alaska 26 24 22 29 24 34 45 44 44 44 4.33 48 3.96 -4 -0.37

Arizona 2 4 5 11 15 13 6 8 14 14 5.47 10 5.62 4 0.15

Arkansas 28 40 43 30 31 33 23 23 20 20 5.14 24 5.04 -4 -0.10

California 14 14 13 16 13 17 22 21 24 24 5.03 30 4.94 -6 -0.09

Colorado 38 35 34 42 34 39 42 40 40 42 4.45 44 4.23 -2 -0.23

Connecticut 21 20 20 21 19 23 21 22 23 23 5.07 26 5.00 -3 -0.07

Delaware 1 3 3 3 3 3 3 3 2 2 5.99 1 6.19 1 0.20

Florida 4 2 2 2 2 2 2 2 4 3 5.92 4 5.98 -1 0.06

Georgia 39 39 39 35 37 37 38 38 37 35 4.70 34 4.76 1 0.06

Hawaii 32 28 24 24 26 26 28 25 31 30 4.90 41 4.39 -11 -0.51

Idaho 47 46 45 46 45 47 47 47 46 47 4.04 47 3.96 0 -0.08

Illinois 41 37 37 38 41 41 39 42 42 43 4.41 42 4.31 1 -0.10

Indiana 10 9 15 10 10 11 25 27 26 27 4.93 25 5.02 2 0.09

Iowa 33 33 35 34 33 32 34 36 34 33 4.81 32 4.92 1 0.11

Kansas 7 8 11 12 12 15 14 14 16 15 5.42 16 5.48 -1 0.06

Kentucky 46 45 46 48 47 46 48 48 48 48 4.01 46 4.05 2 0.04

Louisiana 5 5 4 9 4 4 4 4 6 6 5.73 13 5.56 -7 -0.17

Maine 37 42 41 44 43 24 31 32 35 38 4.60 29 4.95 9 0.35

Maryland 31 21 28 26 23 28 32 33 47 41 4.46 43 4.26 -2 -0.20

Massachusetts 48 48 47 49 49 50 50 50 50 50 3.32 50 2.81 0 -0.51

Michigan 44 47 48 47 48 48 17 18 7 8 5.66 7 5.69 1 0.03

Minnesota 34 29 29 28 36 25 33 31 28 34 4.80 31 4.93 3 0.13

Mississippi 8 7 8 5 5

5 5 5 5 5 5.80 5 5.85 0 0.05

Missouri 13 13 12 7 7 8 9 7 3 4 5.92 3 6.06 1 0.14

Montana 20 18 18 19 20 21 20 20 19 18 5.16 22 5.08 -4 -0.08

Nebraska 12 12 10 8 9 9 11 11 11 11 5.56 9 5.66 2 0.10

Nevada 43 43 42 43 44 44 46 46 45 46 4.19 45 4.22 1 0.04

New Hampshire 45 44 44 41 42 43 44 43 43 45 4.32 40 4.45 5 0.13

New Jersey 30 32 32 25 35 31 30 30 33 32 4.85 37 4.61 -5 -0.24

New Mexico 11 10 7 17 16 10 8 9 8 9 5.65 11 5.60 -2 -0.05

New York 24 31 33 32 29 30 37 37 36 40 4.50 39 4.48 1 -0.01

North Carolina 9 11 9 6 6 7 10 10 10 10 5.59 6 5.72 4 0.13

North Dakota 16 16 16 15 14 14 13 13 9 7 5.68 14 5.55 -7 -0.13

Ohio 6 6 6 4 8 6 7 6 13 13 5.52 12 5.56 1 0.04

Oklahoma 3 1 1 1 1 1 1 1 1 1 6.07 2 6.11 -1 0.04

Oregon 29 30 27 33 30 36 35 35 39 36 4.69 38 4.52 -2 -0.17

Pennsylvania 50 50 50 45 50 45 41 39 22 22 5.08 21 5.11 1 0.02

Rhode Island 49 49 49 50 46 49 49 49 49 49 3.77 49 3.63 0 -0.14

South Carolina 35 36 31 37 28 27 26 24 29 29 4.91 27 5.00 2 0.09

South Dakota 40 41 40 40 38 38 43 41 38 37 4.68 35 4.76 2 0.07

Tennessee 25 26 25 23 22 22 24 26 21 21 5.10 20 5.11 1 0.01

Texas 15 15 14 13 25 18 12 12 12 12 5.55 8 5.68 4 0.12

Utah 19 22 19 22 21 16 15 17 17 16 5.40 17 5.46 -1 0.06

Vermont 17 17 17 20 18 20 16 16 15 17 5.36 18 5.35 -1 -0.01

Virginia 42 38 38 39 40 42 40 45 41 39 4.52 36 4.68 3 0.16

Washington 18 19 21 18 17 19 19 19 25 25 5.02 19 5.28 6 0.26

West Virginia 22 23 23 27 27 29 29 28 27 26 4.95 33 4.86 -7 -0.09

Wisconsin 27 27 36 36 39 40 36 34 30 31 4.90 28 4.96 3 0.06

Wyoming 36 34 30 31 32 35 27 29 32 28 4.92 23 5.07 5 0.15

District of Columbia 25 27 27 27 29 32 34 36 39 38 4.64 38 4.57 0 -0.07

Note: A rank of 1 is best, 50 is worst. Rankings do not average to the total. States without a tax rank equally as 1. DC’s score and

rank do not affect other states. The report shows tax systems as of July 1, 2023 (the beginning of Fiscal Year 2024).

Source: Tax Foundation.

Tax Foundation | 49

Conversely, the states with the worst UI taxes are Massachusetts, Rhode Island, Alaska, Idaho, Kentucky,

and Nevada. These states tend to have rate structures with high minimum and maximum rates and wage

bases above the federal level. They also tend to feature more complicated experience formulas and

charging methods, and have added benets and surtaxes to their systems.

Unemployment Insurance Tax Rate

UI tax rates in each state are based on a schedule of rates ranging from a minimum rate to a maximum

rate. The rate for any particular business is dependent upon the business’s experience rating: businesses

with the best experience ratings will pay the lowest possible rate on the schedule while those with the

worst ratings pay the highest. The rate is applied to a taxable wage base (a predetermined fraction of an

employee’s wage) to determine UI tax liability.

Multiple rates and rate schedules can affect neutrality as states attempt to balance the dual UI objectives

of spreading the cost of unemployment to all employers and ensuring high-turnover employers pay more.

Overall, the states with the best score on this rate subindex are Nebraska, South Carolina, Virginia, Maine,

Florida, Missouri, Texas, Mississippi, and Georgia. Generally, these states have low minimum and maxi-

mum tax rates on each schedule and a wage base at or near the federal level. The states with the worst

scores are Massachusetts, Alaska, Maryland, Hawaii, Oregon, Rhode Island, and New York.

The subindex gives equal weight to two factors: the actual rate schedules in effect in the most recent year,

and the statutory rate schedules that can potentially be implemented at any time depending on the state

of the economy and the UI fund.

Tax Rates Imposed in the Most Recent Year

Minimum Tax Rate. States with lower minimum rates score better. The minimum rates in effect in the

most recent year range from zero percent (in Iowa, Missouri, Nebraska, Nevada, South Dakota, and Wis-

consin) to 2.10 percent (in New York).

Maximum Tax Rate. States with lower maximum rates score better. The maximum rates in effect in the

most recent year range from 5.4 percent (in Alabama, Alaska, Florida, Idaho, Nebraska, Nevada, Oregon,

and Vermont) to 19.57 percent (in Massachusetts).

Taxable Wage Base. Arkansas, California, Florida, and Tennessee receive the best scores in this variable

with a taxable wage base of $7,000—in line with the federal taxable wage base. The state with the highest

taxable bases and, thus, the worst score on this variable, is Washington ($67,600).

50 | State Business Tax Climate Index 2024

Potential Rates

Due to the effect of business and seasonal cycles on UI funds, states will sometimes change UI tax rate

schedules. When UI trust funds are ush, states will trend toward their lower rate schedules (“most favor-

able schedules”); however, when UI trust funds are low, states will trend toward their higher rate schedules

(“least favorable schedules”).

Most Favorable Schedule: Minimum Tax Rate. States receive the best score in this variable with a min-

imum tax rate of zero, which they implement when unemployment is low and the UI fund is ush. The

minimum rate on the most favorable schedule ranges from zero in 22 states to 1.0 percent in Alaska.

Most Favorable Schedule: Maximum Tax Rate. The lowest maximum rate of 5.4 percent is imposed by

22 states and the District of Columbia. The state with the highest maximum tax rate and, thus, the worst

maximum tax score, is Wisconsin (10.7 percent).

Least Favorable Schedule: Minimum Tax Rate. Thirteen states receive the best score on this variable with

a minimum tax rate of zero percent. The state with the highest minimum tax rate and, thus, the worst mini-

mum tax score, is Hawaii (2.4 percent).

Least Favorable Schedule: Maximum Tax Rate. Eleven states receive the best score in this variable with

a comparatively low maximum tax rate of 5.4 percent. The state with the highest maximum tax rate and,

thus, the worst maximum tax score, is Massachusetts (18.55 percent).

Unemployment Insurance Tax Base

The UI base subindex scores states on how they determine which businesses should pay the UI tax and

how much, as well as other UI-related taxes for which businesses may also be liable.

The states that receive the best scores on this subindex are Oklahoma, Delaware, Vermont, New Mexico,

and North Dakota. In general, these states have relatively simple experience formulas, they exclude more

factors from the charging method, and they enforce fewer surtaxes.

States that receive the worst scores are Virginia, Nevada, Idaho, Georgia, New Hampshire, and Maine.

In general, they have more complicated experience formulas, exclude fewer factors from the charging

method, and have complicated their systems with add-ons and surtaxes. The three factors considered in

this subindex are experience rating formulas (40 percent of the subindex score), charging methods (40

percent of the subindex score), and a host of smaller factors aggregated into one variable (20 percent of

the subindex score).

Experience Rating Formula. A business’s experience rating formula determines the rate the rm must

pay—whether it will lean toward the minimum rate or maximum rate of the particular rate schedule in

effect in the state at that time.

Tax Foundation | 51

There are four basic experience formulas: contribution, benet, payroll, and state experience. The rst

three experience formulas–contribution, benet, and payroll–are based solely on the business’s experi-

ence and are therefore nonneutral by design.

However, the nal variable–state experience–is a positive

mitigating factor because it is based on statewide experience. In other words, the state experience is not

tied to the experience of any one business; therefore, it is a more neutral factor. This subindex penalizes

states that depend on the contribution, benet, and payroll experience variables while rewarding states

with the state experience variable.

Charging Methods and Benets Excluded from Charging. A business’s experience rating will vary depend-

ing on which charging method the state government uses. When a former employee applies for unemploy-

ment benets, the benets paid to the employee must be charged to a previous employer. There are three

basic charging methods:

• Charging Most Recent or Principal Employer: Ten states charge all the benets to one employer, usually

the most recent.

• Charging Base-Period Employers in Inverse Chronological Order: Six states charge all base-period

employers in inverse chronological order. This means that all employers within a base period of time

(usually the last year, sometimes longer) will have the benets charged against them, with the most

recent employer being charged the most.

• Charging in Proportion to Base-Period Wages: Thirty-four states and the District of Columbia charge in

proportion to base-period wages. This means that all employers within a base period of time (usually

the last year, sometimes longer) will have the benets charged against them in proportion to the wag-

es they paid.

None of these charging methods could be called neutral, but at the margin, charging the most recent or

principal employer is the least neutral because the business faced with the necessity of laying off employ-

ees knows it will bear the full benet charge. The most neutral of the three is the “charging in proportion to

base-period wages” since there is a higher probability of sharing the benet charges with previous em-

ployers.

As a result, the states that charge in proportion to base-period wages receive the best score. The states

that charge the most recent or principal employer receive the worst score. The states that charge base-pe-

riod employers in inverse chronological order receive a median score.

Many states also recognize that certain benet costs should not be charged to employers, especially if

the separation is beyond the employer’s control. Therefore, this subindex also accounts for six types of

exclusions from benet charges:

• Benet award reversed

• Reimbursements on combined wage claims

• Voluntary leaving

34 Alaska is the only state to use the payroll experience method. This method does not use benet payments in the formula but instead the variation in an employer’s

payroll from quarter to quarter. This is a violation of tax neutrality since any decision by the employer or employee that would affect payroll may trigger higher UI

tax rates.

52 | State Business Tax Climate Index 2024

• Discharge for misconduct

• Refusal of suitable work

• Continues to work for employer on part-time basis

States are rewarded for each of these exclusions because they nudge a UI system toward neutrality.

For instance, if benet charges were levied for employees who voluntarily quit, then industries with high

turnover rates, such as retail, would be hit disproportionately harder. States that receive the best scores in

this category are Connecticut, Delaware, Louisiana, Missouri, Ohio, and Vermont. On the other hand, the

states that receive the worst scores are Virginia, Nevada, New Hampshire, Maine, Georgia, Idaho, Illinois,

Kentucky, Rhode Island, and South Carolina. Most states charge the most recent or principal employer and

forbid most benet exclusions.

Solvency Tax. These taxes are levied on employers when a state’s unemployment fund falls below some

dened level. Twenty-nine states have a solvency tax on the books, though they fall under different names,

such as solvency adjustment tax (Alaska), supplemental assessment tax (Delaware), subsidiary tax (New

York), and fund balance factor (Virginia).

Taxes for Socialized Costs or Negative Balance Employer. These are levied on employers when the state

desires to recover benet costs above and beyond the UI tax collections based on the normal experience

rating process. Eight states have these taxes on the books, though they fall under different names, such

as shared cost assessment tax (Alabama) and social cost factor tax (Washington).

Loan and Interest Repayment Surtaxes. Levied on employers when a loan is taken from the federal gov-

ernment or when bonds are sold to pay for benet costs, these taxes are of two general types. The rst is

a tax to pay off the federal loan or bond issue. The second is a tax to pay the interest on the federal loan

or bond issue. States are not allowed to pay interest costs directly from the state’s unemployment trust

fund. Twenty-seven 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).

Reserve Taxes. Reserve taxes are levied on employers, to be deposited in a reserve fund separate from

the unemployment trust fund. Since the fund is separate, the interest earned on it is often used to create

other funds for purposes such as job training and paying the costs of the reserve tax’s collection. Four

states have these taxes on the books: Idaho and Iowa (reserve tax), Nebraska (state UI tax), and North

Carolina (reserve fund tax).

Surtaxes for UI Administration or Non-UI Purposes. Twenty-eight states and the District of Columbia levy

surtaxes on employers, usually to fund administration but sometimes for job training or special improve-

ments in technology. They are often deposited in a fund outside of the state’s unemployment fund. Some

of the names they go by are the state training and employment program (Arkansas), reemployment ser-

vice fund tax (New York), wage security tax (Oregon), and investment in South Dakota future fee (South

Dakota).

Tax Foundation | 53

Temporary Disability Insurance. A handful of states–California, Hawaii, New Jersey, and New York–have

established a temporary disability insurance (TDI) program that augments the UI program by extending

benets to those unable to work because of sickness or injury. No separate tax funds these programs;

the money comes right out of the states’ unemployment funds. Because the balance of the funds triggers

various taxes, the TDIs are included as a negative factor in the calculation of this subindex.

Voluntary Contributions. Twenty-eight states allow businesses to make voluntary contributions to the

unemployment trust fund. In most cases, these contributions are rewarded with a lower rate schedule,

often saving the business more money in taxes than was paid through the contribution. The Index rewards

states that allow voluntary contributions because rms are able to pay when they can best afford to in-

stead of when they are struggling. This provision helps to mitigate the nonneutralities of the UI tax.

Time Period to Qualify for Experience Rating. Newly formed businesses, naturally, do not qualify for an

experience rating because they have no signicant employment history on which to base the rating. Fed-

eral rules stipulate that states can levy a “new employer” rate for one to three years, but no less than one

year. From a neutrality perspective, however, this new employer rate is nonneutral in almost all cases since

the rate is higher than the lowest rate schedule. The longer this rate is in effect, the worse the nonneutrali-

ty. As such, the Index rewards states with the minimum one year required to earn an experience rating and

penalizes states that require the full three years.

54 | State Business Tax Climate Index 2024

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Tax Foundation | 57

Table 8. State Corporate Income Tax

Rates (as of July 1, 2023)

State Rates Brackets

Gross Receipts

Tax Rate (a)

Alabama 6.5% > $0

Alaska 0.0% > $0

2.0% > $25,000

3.0% > $49,000

4.0% > $74,000

5.0% > $99,000

6.0% > $124,000

7.0% > $148,000

8.0% > $173,000

9.0% > $198,000

9.4% > $222,000

Arizona 4.9% > $0

Arkansas 1.0% > $0

2.0% > $3,000

3.0% > $6,000

5.0% > $11,000

5.1% > $25,000

California 8.84% > $0

Colorado 4.55% > $0

Connecticut (b) 8.25% > $0

Delaware 8.7% > $0 0.0945% - 0.7468% (c)

Florida 5.5% > $0

Georgia 5.75% > $0

Hawaii 4.4% > $0

5.4% > $25,000

6.4% > $100,000

Idaho 5.8% > $0

Illinois (d) 9.5% > $0

Indiana 4.90% > $0

Iowa 5.5% > $0

8.4% > $100,000

Kansas 4.0% > $0

7.0% > $50,000

Kentucky 5.0% > $0

Louisiana 3.5% > $0

5.5% > $50,000

7.5% > $150,000

Maine 3.5% > $0

7.93% > $350,000

8.33% > $1,050,000

8.93% > $3,500,000

Maryland 8.25% > $0

Massachusetts 8.0% > $0

Michigan 6.0% > $0

Minnesota 9.8% > $0

Mississippi 3.0% > $0

4.0% > $5,000

5.0% > $10,000

Missouri 4.0% > $0

Montana 6.75% > $0

Nebraska 5.58% > $0

7.25% > $100,000

Nevada (e) None 0.051% - 0.331% (c)

New Hampshire 7.5% > $0

New Jersey (f, g) 6.5% > $0

7.5% > $50,000

9.0% > $100,000

11.5% > $1,000,000

New Mexico 4.8% > $0

5.9% > $500,000

New York (f) 6.50% > $0

7.25% > $5,000,000

North Carolina 2.5% > $0

North Dakota 1.41% > $0

3.55% > $25,000

4.31% > $50,000

Ohio (a) 0.26%

Oklahoma 6.0% > $0

Oregon 6.6% > $0 0.57%

7.6% > $1,000,000

Pennsylvania 8.99% > $0

Rhode Island 7.0% > $0

South Carolina 5.0% > $0

South Dakota None

Tennessee 6.5% > $0 0.02%-0.3% (c)

Texas (a) 0.331% - 0.75% (c)

Utah 4.65% > $0

Vermont 6.0% > $0

7.0% > $10,000

8.5% > $25,000

Virginia 6.0% > $0 0.02% - 0.58% (c)

Washington (a) 0.13% - 3.3% (c)

West Virginia 6.5% > $0

Wisconsin 7.9% > $0

Wyoming None

District of Columbia 8.25% > $0

Note: In addition to regular income taxes, many states impose other

taxes on corporations such as gross receipts taxes and franchise

taxes. Some states also impose an alternative minimum tax (see

Table 12). Some states impose special rates on financial institutions.

(a) While many states collect gross receipts taxes from public

utilities and other sectors, and some states label their sales tax

as a gross receipts tax, we show only those state gross receipts

taxes that broadly tax all business as a percentage of gross

receipts: the Delaware Manufacturers & Merchants’ License Tax,

the Nevada Commerce Tax, the Ohio Commercial Activities Tax,

the Tennessee Business Tax, the Texas Margin Tax, the Virginia

locally-levied Business/Professional/Occupational License Tax,

and the Washington Business & Occupation Tax. Ohio, Texas, and

Washington do not have a corporate income tax but do have a

gross receipts tax, while Delaware, Tennessee, and Virginia have a

gross receipts tax in addition to the corporate income tax.

(b) Connecticut’s rate includes a 10% surtax that effectively increases

the rate from 7.5% to 8.25%. The surtax is required by businesses

with at least $100 million annual gross income.

has only two rates: 0.375% on retail and wholesale and 0.75% on

all other industries. Virginia’s tax is locally levied and rates vary

by business and by jurisdiction. Washington has over 30 different

industry classifications and rates, while Nevada has 26.

(d) Illinois’ rate includes two separate corporate income taxes, one at

a 7% rate and one at a 2.5% rate.

(e) Nevada also levies a payroll tax, the Modified Business Tax, which

is reflected in the individual income tax component of the Index.

(f) The rates indicated apply to a corporation’s entire net income

rather than just income over the threshold.

(g) In New Jersey, a temporary and retroactive surcharge has been in

effect from 2020 to 2023, bringing the rate to 11.5% for businesses

with income over $1 million.

Source: Tax Foundation; state tax statutes, forms, and instructions;

Bloomberg Tax.

Table 8, Continued. State Corporate

Income Tax Rates (as of July 1, 2023)

State Rates Brackets

Gross Receipts

Tax Rate (a)

58 | State Business Tax Climate Index 2024

Table 9. State Corporate Income Tax and Business Tax Bases: Tax Credits and

Gross Receipts Tax Deductions (as of July 1, 2023)

Job Credits

Research and

Development

Credits

Investment

Credits

Gross Receipts Tax Deductions

Compensation

Expenses Deductible

Cost of Goods

Sold Deductible

Alabama Yes No Yes

Alaska No No No

Arizona Yes Yes Yes

Arkansas Yes Yes Yes

California Yes Yes No

Colorado Yes Yes Yes

Connecticut Yes Yes Yes

Delaware Yes Yes Yes No No

Florida Yes Yes Yes

Georgia Yes Yes Yes

Hawaii No Yes Yes

Idaho Yes Yes Yes

Illinois Yes Yes Yes

Indiana Yes Yes Yes

Iowa Yes Yes Yes

Kansas Yes Yes Yes

Kentucky Yes Yes Yes

Louisiana Yes Yes Yes

Maine No Yes Yes

Maryland Yes Yes Yes

Massachusetts Yes Yes Yes

Michigan No No No

Minnesota Yes Yes Yes

Mississippi Yes No Yes

Missouri Yes Yes Yes

Montana Yes Yes No

Nebraska Yes Yes Yes

Nevada No No No No No

New Hampshire Yes Yes Yes

New Jersey Yes Yes Yes

New Mexico Yes Yes Yes

New York Yes Yes Yes

North Carolina No No No

North Dakota No Yes Yes

Ohio Yes Yes Yes No No

Oklahoma Yes No Yes

Oregon No Yes No No No

Pennsylvania Yes Yes Yes

Rhode Island Yes Yes Yes

South Carolina Yes Yes Yes

South Dakota No No No

Tennessee Yes No Yes No No

Texas No Yes No Partial (a) Partial (a)

Utah Yes Yes Yes

Vermont No Yes Yes

Virginia Yes Yes Yes

Washington No No No No No

West Virginia Yes Yes Yes

Wisconsin Yes Yes Yes

Wyoming No No No

District of Columbia Yes No No

(a) Businesses may deduct either compensation or cost of goods sold but not both.

Source: Tax Foundation; Bloomberg Tax; state statutes.

Tax Foundation | 59

Table 10. State Corporate Income Tax and Business Tax Bases: Net

Operating Losses (as of July 1, 2023)

Carryback (Years) Carryback Cap Carryforward (Years) Carryforward Cap

Alabama 0 $0 15 Unlimited

Alaska Conforms to federal treatment

Arizona 0 $0 20 Unlimited

Arkansas 0 $0 8 Unlimited

California 0 0 0 0

Colorado Conforms to federal treatment

Connecticut 0 $0 20 Unlimited

Delaware Conforms to federal treatment

Florida Conforms to federal treatment

Georgia Conforms to federal treatment

Hawaii Conforms to federal treatment

Idaho 2 $100,000 20 Unlimited

Illinois 0 $0 20 $100,000

Indiana 0 $0 20 Unlimited

Iowa 0 $0 20 Unlimited

Kansas Conforms to federal treatment

Kentucky Conforms to federal treatment

Louisiana 0 $0 20 Unlimited

Maine Conforms to federal treatment

Maryland Conforms to federal treatment

Massachusetts 0 $0 20 Unlimited

Michigan 0 $0 10 Unlimited

Minnesota 0 $0 15 Unlimited

Mississippi 2 Unlimited 20 Unlimited

Missouri 2 Unlimited 20 Unlimited

Montana 3 $500,000 10 Unlimited

Nebraska 0 $0 20 Unlimited

Nevada n.a. n.a. n.a. n.a.

New Hampshire 0 $0 10 $10,000,000

New Jersey 0 $0 20 Unlimited

New Mexico Conforms to federal treatment

New York 3 Unlimited 20 Unlimited

North Carolina 0 $0 15 Unlimited

North Dakota Conforms to federal treatment

Ohio n.a. n.a. n.a. n.a.

Oklahoma Conforms to federal treatment

Oregon 0 $0 15 Unlimited

Pennsylvania 0 $0 20 40% of Liability (a)

Rhode Island 0 $0 5 Unlimited

South Carolina Conforms to federal treatment

South Dakota Conforms to federal treatment

Tennessee 0 $0 15 Unlimited

Texas n.a. n.a. n.a. n.a.

Utah Conforms to federal treatment

Vermont 0 $0 10 Unlimited

Virginia Conforms to federal treatment

Washington n.a. n.a. n.a. n.a.

West Virginia Conforms to federal treatment

Wisconsin 0 $0 20 Unlimited

Wyoming n.a. n.a. n.a. n.a.

District of Columbia Conforms to federal treatment

(a) Pennsylvania allows unlimited carryforwards but caps claims at 40 percent of tax liability in any given year.

Source: Tax Foundation; Bloomberg Tax; state statutes.

60 | State Business Tax Climate Index 2024

Table 11. State Corporate Income Tax and Business Tax Bases:

Treatment of Capital Investment (as of July 1, 2023)

Section 168(k)

Expensing

Conforms to Section

163(j) Limitation

GILTI

Inclusion

Alabama 80% Yes Decouples/95% exclusion

Alaska 80% Yes Decouples/95% exclusion

Arizona 0% Yes Decouples/95% exclusion

Arkansas 0% No Decouples/95% exclusion

California 0% No Decouples/95% exclusion

Colorado 80% Yes Decouples/95% exclusion

Connecticut 0% No Decouples/95% exclusion

Delaware 80% Yes Mostly Excluded

Florida 11% Yes Decouples/95% exclusion

Georgia 0% No Decouples/95% exclusion

Hawaii 0% Yes Decouples/95% exclusion

Idaho 0% Yes Mostly Excluded

Illinois 0% Yes Decouples/95% exclusion

Indiana 0% No Decouples/95% exclusion

Iowa 80% No Decouples/95% exclusion

Kansas 80% Yes Decouples/95% exclusion

Kentucky 0% Yes Decouples/95% exclusion

Louisiana 80% Yes Decouples/95% exclusion

Maine 0% Yes Taxes 50% or more of GILTI

Maryland 0% Yes Taxes 50% or more of GILTI

Massachusetts 0% Yes Decouples/95% exclusion

Michigan 0% Yes Decouples/95% exclusion

Minnesota 20% Yes Taxes 50% or more of GILTI

Mississippi 100% No Decouples/95% exclusion

Missouri 80% No Decouples/95% exclusion

Montana 80% Yes Mostly Excluded

Nebraska 80% Yes Mostly Excluded

Nevada 0% No Decouples/95% exclusion

New Hampshire 0% Yes Decouples/95% exclusion

New Jersey 0% Yes Taxes 50% or more of GILTI

New Mexico 80% Yes Decouples/95% exclusion

New York 0% Yes Decouples/95% exclusion

North Carolina 15% Yes Decouples/95% exclusion

North Dakota 80% Yes Mostly Excluded

Ohio 0% No Decouples/95% exclusion

Oklahoma 100% Yes Decouples/95% exclusion

Oregon 80% Yes Mostly Excluded

Pennsylvania 0% Yes Decouples/95% exclusion

Rhode Island 0% Yes Taxes 50% or more of GILTI

South Carolina 0% No Decouples/95% exclusion

South Dakota 100% No Decouples/95% exclusion

Tennessee 80% No Decouples/95% exclusion

Texas 0% No Decouples/95% exclusion

Utah 80% Yes Taxes 50% or more of GILTI

Vermont 0% Yes Mostly Excluded

Virginia 0% Yes Decouples/95% exclusion

Washington 0% No Decouples/95% exclusion

West Virginia 80% Yes Mostly Excluded

Wisconsin 0% No Decouples/95% exclusion

Wyoming 100% No Decouples/95% exclusion

District of Columbia 0% Yes Taxes 50% or more of GILTI

Note: “Mostly Excluded” means GILTI may apply or that the deduction is less than 95%.

Source: Tax Foundation; Bloomberg Tax; state statutes.

Tax Foundation | 61

Table 12. State Corporate Income Tax and Business Tax Bases: Other

Variables (as of July 1, 2023)

Federal

Income Used

as State Tax

Base

Allows

Federal ACRS

or MACRS

Depreciation

Allows

Federal

Depletion

Throwback

Rule

Foreign Tax

Deductibility

Corporate

AMT

Brackets

Indexed for

Inflation

Alabama Yes Yes Yes No Yes No Flat CIT

Alaska Yes Yes Partial Yes No No No

Arizona Yes Yes Yes No No No Flat CIT

Arkansas No Yes Yes Yes Yes No No

California Yes No Partial Yes No Yes Flat CIT

Colorado Yes Yes Yes Yes No No Flat CIT

Connecticut Yes Yes Yes No Yes No No

Delaware Yes Yes Partial No No No Flat CIT

Florida Yes Yes Yes No Yes No Flat CIT

Georgia Yes Yes Yes No No No Flat CIT

Hawaii Yes Yes Yes Yes Yes No No

Idaho Yes Yes Yes Yes Yes No Flat CIT

Illinois Yes Yes Yes Yes Yes No Flat CIT

Indiana Yes Yes Yes No Yes No Flat CIT

Iowa Yes Yes Partial No Yes No No

Kansas Yes Yes Yes Yes No No No

Kentucky Yes Yes Yes No No Yes Flat CIT

Louisiana Yes Yes Partial Yes Yes No No

Maine Yes Yes Yes Yes Yes No No

Maryland Yes Yes Partial No Yes No Flat CIT

Massachusetts Yes Yes Yes Yes No No Flat CIT

Michigan Yes Yes Yes No No No Flat CIT

Minnesota Yes Yes Partial No No Yes Flat CIT

Mississippi No Yes Partial Yes No No No

Missouri Yes Yes Yes No Yes No Flat CIT

Montana Yes Yes Yes Yes No No Flat CIT

Nebraska Yes Yes Yes No Yes No No

Nevada Yes Yes Yes No Yes No GRT

New Hampshire Yes Yes Partial Yes No Yes Flat CIT

New Jersey Yes Yes Yes No No No No

New Mexico Yes Yes Yes Yes Yes No No

New York Yes Yes Yes No Yes No Flat CIT

North Carolina Yes Yes Partial No No No Flat CIT

North Dakota Yes Yes Yes Yes No No No

Ohio Yes Yes Yes No Yes No GRT

Oklahoma Yes Yes Partial Yes No No Flat CIT

Oregon Yes Yes Partial Yes No No No

Pennsylvania Yes Yes Yes No No No Flat CIT

Rhode Island Yes Yes Yes Yes Yes No Flat CIT

South Carolina Yes Yes Yes No No No Flat CIT

South Dakota n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Tennessee Yes Yes Partial No Yes No Flat CIT

Texas Partial Yes Yes No Yes No GRT

Utah Yes Yes Yes Yes No No Flat CIT

Vermont Yes Yes Yes No Yes No No

Virginia Yes Yes Yes No No No Flat CIT

Washington Yes Yes Yes No Yes No GRT

West Virginia

Yes Yes Yes No No No Flat CIT

Wisconsin Yes Yes Yes Yes No No Flat CIT

Wyoming n.a. n.a. n.a. n.a. n.a. n.a. n.a.

District of Columbia Yes Yes Yes Yes Partial No Flat CIT

Source: Tax Foundation; Bloomberg Tax; state statutes.

62 | State Business Tax Climate Index 2024

Alabama 2.0% > $0 $2,500 $1,500 $1,000 0.50%

4.0% > $500

5.0% > $3,000

Alaska No Income Tax None

Arizona 2.50% > $0 $13,850 ( j) n.a. n.a. None

Arkansas (e, f) 2.0% > $0 $2,200 $29 (g) $29 (g) None

4.0% > $4,300

4.7% > $8,800

California (e) 1.0% > $0 $5,202 $140 (g) $433 (g) None

2.0% > $10,099

4.0% > $23,942

6.0% > $37,788

8.0% > $52,455

9.3% > $66,295

10.3% > $338,639

11.3% > $406,364

12.3% > $677,275

13.3% > $1,000,000

Colorado 4.40% > $0 $13,850 ( j) n.a. n.a. None

Connecticut (f) 3.0% > $0 n.a. $15,000 (d) $0 None

5.0% > $10,000

5.50% > $50,000

6.0% > $100,000

6.50% > $200,000

6.90% > $250,000

6.99% > $500,000

Delaware 2.20% > $2,000 $3,250 $110 (g) $110 (g) 0.625%

3.90% > $5,000

4.80% > $10,000

5.20% > $20,000

5.55% > $25,000

6.60% > $60,000

Florida No Income Tax None

Georgia 1.0% > $0 $5,400 $2,700 $3,000 None

2.0% > $750

3.0% > $2,250

4.0% > $3,750

5.0% > $5,250

5.75% > $7,000

Hawaii 1.40% > $0 $2,200 $1,144 (d) $1,144 None

3.20% > $2,400

5.50% > $4,800

6.40% > $9,600

6.80% > $14,400

7.20% > $19,200

7.60% > $24,000

7.90% > $36,000

8.25% > $48,000

9.00% > $150,000

10.00% > $175,000

11.00% > $200,000

Idaho 5.8% > $0 $13,850 ( j) n.a. n.a. None

Illinois (h) 4.95% > $0 $0 $2,625 $2,625 None

Indiana 3.15% > $0 $0 $1,000 $1,000 1.75%

Iowa 0.33% > $0 $2,210 $40 (g) $40 (g) 0.4265%

0.67% > $1,743

2.25% > $3,486

8.53% > $78,435

Kansas 3.10% > $0 $3,500 $2,250 $2,250 None

5.25% > $15,000

5.70% > $30,000

Kentucky 4.5% > $0 $2,980 n.a. n.a. 1.980%

Table 13. State Individual Income Tax Rates (as of July 1, 2023)

Standard Deduction Personal Exemption

Average Local Income

Tax Rates (c)State Rates Brackets (a) Single Per Filer (b) Per Dependent

Tax Foundation | 63

Louisiana 1.85% > $0 n.a. $4,500 (i) $1,000 None

3.50% > $12,500

4.25% > $50,000

Maine (e) 5.80% > $0 $13,850 $4,700 $300 (g) None

6.75% > $24,500

7.15% > $58,050

Maryland 2.0% > $0 $2,350 $3,200 (d) $3,200 3.010%

3.0% > $1,000

4.0% > $2,000

4.75% > $3,000

5.0% > $100,000

5.25% > $125,000

5.50% > $150,000

5.75% > $250,000

Massachusetts 5.00% > $0 n.a. $4,400 $1,000 None

9.00% > $1,000,000

Michigan 4.25% > $0 n.a. $5,000 $5,000 1.70%

Minnesota (e) 5.35% > $0 $13,850 ( j) n.a. $4,800 None

6.80% > $30,070

7.85% > $98,760

9.85% > $183,340

Mississippi 0.0% > $0 $2,300 $6,000 $1,500 None

5.0% > $10,000

Missouri 0.0% > $0 $13,850 ( j) n.a. n.a. 0.50%

2.00% > $1,121

2.50% > $2,242

3.00% > $3,363

3.50% > $4,484

4.00% > $5,605

4.50% > $6,726

4.95% $7,847

Montana (e) 1.0% > $0 $5,540 $2,960 $2,960 None

2.0% > $3,600

3.0% > $6,300

4.0% > $9,700

5.0% > $13,000

6.0% > $16,800

6.75% > $21,600

Nebraska (e)(f) 2.46% > $0 $7,900 $157 (d, g) $157 (d, g) None

3.51% > $3,700

5.01% > $22,170

6.64% > $35,730

Nevada (k) No Income Tax None

New Hampshire (l) 4.0% > $0 n.a. $2,400 $0 None

New Jersey 1.400% > $0 n.a. $1,000 $1,500 0.50%

1.750% > $20,000

3.500% > $35,000

5.525% > $40,000

6.370% > $75,000

8.970% > $500,000

10.750% > $1,000,000

New Mexico 1.7% > $0 $13,850 (j) n.a. $4,000 None

3.2% > $5,500

4.7% > $11,000

4.9% > $16,000

5.9% $210,000

Table 13, Continued. State Individual Income Tax Rates (as of July 1, 2023)

Standard Deduction Personal Exemption

Average Local Income

Tax Rates (c)State Rates Brackets (a) Single Per Filer (b) Per Dependent

64 | State Business Tax Climate Index 2024

New York (e, f) 4.00% > $0 $8,000 n.a. $1,000 1.938%

4.50% > $8,500

5.25% > $11,700

5.85% > $13,900

6.25% > $80,650

6.85% > $215,400

9.65% > $1,07 7,550

10.30% > $5,000,000

10.90% 25,000,000

North Carolina 4.75% > $0 $12,750 n.a. n.a. None

North Dakota (e) 1.95% > $44,725 $13,850 (j) n.a. n.a. None

2.50% > $225,975

Ohio (e) 2.750% > $26,050 n.a. $2,400 $2,400 2.50%

3.688% > $100,000

3.750% > $115,300

Oklahoma 0.25% > $0 $6,350 $1,000 $1,000 None

0.75% > $1,000

1.75% > $2,500

2.75% > $3,750

3.75% > $4,900

4.75% > $7,200

Oregon (e, k) 4.75% > $0 $2,605 $236 (g) $236 (g) 2.794%

6.75% > $3,650

8.75% > $9,200

9.90% > $125,000

Pennsylvania 3.07% > $0 n.a. n.a. n.a. 2.920%

Rhode Island (e) 3.75% > $0 $10,000 (d) n.a. $4,700 (d) None

4.75% > $68,200

5.99% > $155,050

South Carolina (e) 3.0% > $3,200 $13,850 (j) n.a. $4,430 None

6.5% > $16,040

South Dakota No Income Tax None None

Tennessee No Income Tax None None

Texas No Income Tax None None

Utah 4.65% > $0 (m) (m) (m) None

Vermont (n) 3.35% > $0 $6,500 $4,500 $4,500 None

6.60% > $42,150

7.60% > $102,200

8.75% > $213,150

Virginia 2.0% > $0 $8,000 $930 $930 None

3.0% > $3,000

5.0% > $5,000

5.75% > $17,000

Washington (o) 7.0% > $250,000 None

West Virginia 3.0% > $0 n.a. $2,000 $2,000 None

4.0% > $10,000

4.50% > $25,000

6.0% > $40,000

6.50% > $60,000

Wisconsin (e) 3.54% > $0 $11,790 (d) $700 $700 None

4.65% > $12,760

5.30% > $25,520

7.65% > $280,950

Wyoming No Income Tax None None

District of Columbia 4.0% > $0 $13,850 (j) n.a. n.a. None

6.0% > $10,000

6.50% > $40,000

8.50% > $60,000

9.25% > $250,000

9.75% > $500,000

10.75% > $1,000,000

Table 13, Continued. State Individual Income Tax Rates (as of July 1, 2023)

Standard Deduction Personal Exemption

Average Local Income

Tax Rates (c)State Rates Brackets (a) Single Per Filer (b) Per Dependent

Tax Foundation | 65

(a) Brackets are for single taxpayers. Some states double bracket widths for joint filers (AL, AZ, CT, HI, ID, KS, LA, ME, NE, OR).

New York doubles all except the top two brackets. Some states increase but do not double brackets for joint filers (CA, GA, MN,

NM, NC, ND, OK, RI, VT, WI). Maryland decreases some and increases others. New Jersey adds a 2.45% rate and doubles some

bracket widths. Consult the Tax Foundation website for tables for joint filers.

(b) Married joint filers generally receive double the single exemption.

(c) The average local income tax rate is calculated by taking the mean of the income tax rate in the most populous city and the

capital city.

(d) Subject to phaseout for higher-income taxpayers.

(e) Bracket levels are adjusted for inflation each year.

(f) Arkansas, Connecticut, Nebraska, and New York have an income “recapture” provision whereby the benefit of lower tax brackets

is removed for the top bracket. See the individual income tax section for details.

(g) Tax credit.

(h) Illinois imposes an additional 1.5% tax on pass-through businesses, bringing the combined rate to 6.45%.

(i) The standard deduction and personal exemptions are combined: $4,500 for single and married filing separately; $9,000 married

filing jointly.

(j) These states adopt the same standard deductions or (now zeroed-out) personal exemptions as the federal government. In

some cases, the link is implicit in the fact that the state tax calculations begin with federal taxable income.

(k) Nevada imposes a payroll tax of 1.45%, which is included in the Index as a tax on wage income only. Oregon imposes a payroll

tax of 0.1% in addition to its income tax; this is also reflected in Index calculations.

(l) Tax applies to interest and dividend income only.

(m) Utah’s standard deduction and personal exemption are combined into a single credit equal to 6% of the taxpayer’s federal

standard deduction (or itemized deductions) plus three-forths of the taxpayer’s federal exemptions. This credit is phased out

for higher income taxpayers.

(n) Bracket levels are adjusted for inflation each year; 2023 inflation adjustements were not available as of publication, so inflation-

adjusted amounts for tax year 2022 are shown.

(o) Tax applies to capital gains income only.

Source: Tax Foundation; state tax forms and instructions; state statutes.

Table 13, Continued. State Individual Income Tax Rates (as of July 1, 2023)

Standard Deduction Personal Exemption

Average Local Income

Tax Rates (c)State Rates Brackets (a) Single Per Filer (b) Per Dependent

66 | State Business Tax Climate Index 2024

Table 14. State Individual Income Tax Bases: Marriage Penalty, Capital

Income, and Indexation (as of July 1, 2023)

Convenience

Rule

Capital Income Taxed Indexed for Inflation

Marriage

Penalty Interest Dividends

Capital

Gains

Tax

Brackets

Standard

Deduction

Personal

Exemption

Alabama No No Yes Yes Yes No No No

Alaska n.a. No n.a. n.a. n.a. n.a. n.a. n.a.

Arizona No No Yes Yes Yes Yes Yes Yes

Arkansas No No Yes Yes Yes Yes No Yes

California Yes No Yes Yes Yes Partial Yes Yes

Colorado No No Yes Yes Yes Yes Yes Yes

Connecticut No Partial Yes Yes Yes No Yes No

Delaware No Yes Yes Yes Yes No No No

Florida n.a. No n.a. n.a. n.a. n.a. n.a. n.a.

Georgia Yes No Yes Yes Yes No No No

Hawaii No No Yes Yes Yes No No No

Idaho No No Yes Yes Yes Yes Yes Yes

Illinois No No Yes Yes Yes Yes Yes Yes

Indiana No No Yes Yes Yes Yes Yes No

Iowa No No Yes Yes Yes Yes Yes No

Kansas No No Yes Yes Yes No No No

Kentucky No No Yes Yes Yes Yes Yes Yes

Louisiana No No Yes Yes Yes No No No

Maine No No Yes Yes Yes Yes Yes Yes

Maryland Yes No Yes Yes Yes No Yes No

Massachusetts No No Yes Yes Yes Yes Yes No

Michigan No No Yes Yes Yes Yes Yes Yes

Minnesota Yes No Yes Yes Yes Yes Yes Yes

Mississippi No No Yes Yes Yes No No No

Missouri No No Yes Yes Yes Yes Yes Yes

Montana No No Yes Yes Yes Yes Yes Yes

Nebraska No Yes Yes Yes Yes Yes Yes Yes

Nevada n.a. No n.a. n.a. n.a. n.a. n.a. n.a.

New Hampshire No No Yes Yes No Yes Yes No

New Jersey Yes No Yes Yes Yes No Yes No

New Mexico Yes No Yes Yes Yes No Yes Yes

New York Yes Yes Yes Yes Yes No No No

North Carolina No No Yes Yes Yes Yes No Yes

North Dakota Yes No Yes Yes Yes Yes Yes Yes

Ohio Yes No Yes Yes Yes Yes Yes Yes

Oklahoma No No Yes Yes Yes No No No

Oregon No No Yes Yes Yes Partial Yes Yes

Pennsylvania No Yes Yes Yes Yes Yes Yes Yes

Rhode Island Yes No Yes Yes Yes Yes Yes Yes

South Carolina Yes No Yes Yes Yes Yes Yes Yes

South Dakota n.a. No n.a. n.a. n.a. n.a. n.a. n.a.

Tennessee n.a. No n.a. n.a. n.a. n.a. n.a. n.a.

Texas n.a.

No n.a. n.a. n.a. n.a. n.a. n.a.

Utah No No Yes Yes Yes Yes Yes Yes

Vermont Yes No Yes Yes Yes Yes Yes Yes

Virginia Yes No Yes Yes Yes No No No

Washington Yes No n.a. n.a. Yes No n.a. n.a.

West Virginia No No Yes Yes Yes No Yes No

Wisconsin Yes No Yes Yes Yes Yes Yes No

Wyoming n.a. No n.a. n.a. n.a. n.a. n.a. n.a.

District of Columbia No No Yes Yes Yes No Yes Yes

Source: Tax Foundation; Bloomberg Tax; state statutes.

Tax Foundation | 67

Table 15. State Individual Income Tax Bases: Other Variables

(as of July 1, 2023)

Federal Income

Used as State Tax

Base

Credits for

Taxes Paid to

Other States

AMT

Levied

Recognition

of LLC Status

Recognition

of S-Corp

Status

Section 179

Expensing

Limit

Alabama No Yes No Yes Yes $1,000,000

Alaska Yes Yes No Yes Yes $1,000,000

Arizona Yes Yes No Yes Yes $1,000,000

Arkansas No Yes No Yes Partial $25,000

California Yes Yes Yes Yes Yes $25,000

Colorado Yes Yes Yes Yes Yes $1,000,000

Connecticut Yes Yes Yes Yes Yes $200,000

Delaware Yes Yes No No No $1,000,000

Florida n.a. n.a. n.a. Yes Yes $1,000,000

Georgia Yes Yes No Yes Yes $1,000,000

Hawaii Yes Yes No Yes Yes $25,000

Idaho Yes Yes No Yes Yes $1,000,000

Illinois Yes Yes No Yes Yes $1,000,000

Indiana Yes Yes No Yes Yes $25,000

Iowa Yes Yes No Yes Yes $1,000,000

Kansas Yes Yes No Yes Yes $1,000,000

Kentucky Yes Yes No Yes Yes $100,000

Louisiana Yes Yes No Yes No $1,000,000

Maine Yes Yes No Yes Yes $1,000,000

Maryland Yes Yes No Yes Yes $25,000

Massachusetts Yes Yes No Yes Yes $1,000,000

Michigan Yes Yes No Yes Yes $1,000,000

Minnesota Yes Yes Yes Yes Yes $1,000,000

Mississippi No Yes No Yes Yes $1,000,000

Missouri Yes Yes No Yes Yes $1,000,000

Montana Yes Yes No Yes Yes $1,000,000

Nebraska Yes Yes No Yes Yes $1,000,000

Nevada n.a. n.a. n.a. Yes Yes $1,000,000

New Hampshire Yes No No No No $500,000

New Jersey No Yes No Yes Partial $25,000

New Mexico Yes Yes No Yes Yes $1,000,000

New York Yes Yes No Yes Partial $1,000,000

North Carolina Yes Yes No Yes Yes $25,000

North Dakota Yes Yes No Yes Yes $1,000,000

Ohio Yes Yes No No No $1,000,000

Oklahoma Yes Yes No Yes Yes $1,000,000

Oregon Yes Yes No Yes Yes $1,000,000

Pennsylvania No Yes No Yes Yes $25,000

Rhode Island Yes Yes No Yes Yes $1,000,000

South Carolina Yes Yes No Yes Yes $1,000,000

South Dakota n.a. n.a. n.a. Yes Yes $1,000,000

Tennessee Yes Yes No Yes No $1,000,000

Texas n.a. n.a. n.a. No No $1,000,000

Utah Yes Yes No Yes Yes $1,000,000

Vermont Yes Yes No Yes Yes $1,000,000

Virginia Yes Yes No Yes Yes $1,000,000

Washington n.a. n.a. n.a. No No $1,000,000

West Virginia Yes Yes No Yes Yes $1,000,000

Wisconsin Yes Yes No Yes Yes $1,000,000

Wyoming n.a. n.a. n.a. Yes Yes $1,000,000

District of Columbia Yes Yes No Yes No $25,000

Source: Tax Foundation; Bloomberg Tax; state statutes.

68 | State Business Tax Climate Index 2024

Table 16. State Sales and Excise Tax Rates (as of July 1, 2023)

Sales Taxes Excise Taxes

State Sales

Tax Rate

Average

Local Rate

Gasoline

(cents per

gallon) (e)

Diesel

(cents per

gallon) (e)

Cigarettes

(dollars per

pack of 20)

Beer

(dollars per

gallon)

Spirits

(dollars per

gallon) (g)

Alabama 4.00% 5.24% 31.20 32.95 $0.68 $1.05 (f) $21.69 (h)

Alaska n.a 1.81% 8.95 16.15 $2.00 $1.07 $12.80

Arizona 5.60% 2.77% 19.00 27.00 $2.00 $0.16 $3.00

Arkansas 6.50% 2.94% 24.90 28.70 $1.15 $0.35 $8.01

California (a) 7.25% 1.60% 7 7.90 96.10 $2.87 $0.20 $3.30

Colorado 2.90% 4.89% 23.86 22.50 $1.94 $0.08 $2.28

Connecticut 6.35% n.a. 35.75 49.20 $4.35 $0.23 $5.94

Delaware n.a n.a. 23.00 22.00 $2.10 $0.26 $4.50

Florida 6.00% 1.02% 35.23 36.10 $1.34 $0.48 $6.50

Georgia 4.00% 3.39% 31.95 35.75 $0.37 $1.01 (f) $3.79

Hawaii (b) 4.00% 0.44% 55.35 18.50 $3.20 $0.93 $5.98

Idaho 6.00% 0.02% 33.00 33.00 $0.57 $0.15 $12.15 (h)

Illinois 6.25% 2.59% 66.50 74.00 $2.98 $0.23 $8.55

Indiana 7.00% n.a. 54.40 58.00 $1.00 $0.12 $2.68

Iowa 6.00% 0.93% 30.00 32.50 $1.36 $0.19 $14.1 (h)

Kansas 6.50% 2.25% 25.03 27.03 $1.29 $0.18 $2.50

Kentucky 6.00% n.a. 30.10 27.10 $1.10 $0.93 $9.25

Louisiana 4.45% 5.10% 20.93 20.93 $1.08 $0.40 $3.03

Maine 5.50% n.a. 31.40 30.67 $2.00 $0.35 $11.96 (h)

Maryland 6.00% n.a. 47.00 61.55 $3.75 $0.60 $5.46

Massachusetts 6.25% n.a. 27.07 27.07 $3.51 $0.11 $4.05

Michigan 6.00% n.a. 47.20 49.30 $2.00 $0.20 $13.57 (h)

Minnesota 6.88% 0.65% 28.60 28.60 $3.73 $0.47 $8.70

Mississippi 7.0 0% 0.06% 18.40 18.40 $0.68 $0.43 $8.51

Missouri 4.23% 4.14% 24.50 24.50 $0.17 $0.06 $2.00

Montana (c) n.a n.a. 33.75 30.50 $1.70 $0.14 $10.57

Nebraska 5.50% 1.47% 29.90 29.30 $0.64 $0.31 $3.75

Nevada 6.85% 1.39% 23.81 27.75 $1.80 $0.16 $3.60

New Hampshire n.a n.a. 23.83 23.83 $1.78 $0.30 $0.00 (h)

New Jersey (d) 6.63% -0.02% 41.40 48.40 $2.70 $0.12 $5.50

New Mexico (b) 5.00% 2.73% 19.00 23.00 $2.00 $0.41 $6.06

New York 4.00% 4.53% 36.70 34.45 $4.35 $0.14 $6.44

North Carolina 4.75% 2.25% 40.75 40.75 $0.45 $0.62 $16.4 (h)

North Dakota (b) 5.00% 2.04% 23.00 23.00 $0.44 $0.40 $4.68

Ohio 5.75% 1.49% 38.50 47.00 $1.60 $0.18 $11.38 (h)

Oklahoma 4.50% 4.49% 25.00 14.00 $2.03 $0.40 $5.56

Oregon n.a n.a. 36.00 34.00 $3.33 $0.08 $22.86 (h)

Pennsylvania 6.00% 0.34% 62.20 78.50 $2.60 $0.08 $7.41 (h)

Rhode Island 7.00% n.a. 35.00 35.00 $4.25 $0.12 $5.40

South Carolina 6.00% 1.50% 28.75 16.75 $0.57 $0.77 $5.42

South Dakota (b) 4.20% 1.91% 30.00 30.00 $1.53 $0.27 $4.87

Tennessee 7.00% 2.55% 27.4 0 28.40 $0.62 $1.29 $4.46

Texas 6.25% 1.95% 20.00 20.00 $1.41 $0.19 $2.40

Utah (a) 6.10% 1.10% 35.15 35.15 $1.70 $0.41 $15.92 (h)

Vermont 6.00% 0.36% 34.52 16.10 $3.08 $0.27 $8.39 (h)

Virginia (a) 5.30% 0.47% 39.10 40.20 $0.60 $0.26 $22.06 (h)

Washington 6.50% 2.90% 49.40 49.40 $3.03 $0.26 $36.55

West Virginia 6.00% 0.57% 37.20 37.20 $1.20 $0.18 $8.32 (h)

Wisconsin 5.00% 0.43% 32.90 32.90 $2.52 $0.06 $3.25

Wyoming 4.00% 1.44% 24.00 24.00 $0.60 $0.02 $0.00 (h)

District of Columbia 6.00% n.a. 33.80 33.80 $5.02 $0.79 $6.68

(a) Some state sales taxes include a local component collected uniformly across the state: California (1.25%), Utah (1.25%), and Virginia (1%). We

include these in their state sales tax rates.

(b) Sales tax rates in Hawaii, New Mexico, North Dakota, and South Dakota are not strictly comparable to other states due to broad bases that include

many services.

(d) Some counties in New Jersey are not subject to statewide sales tax rates and collect a local rate of 3.3125%. Their average local score is

represented as a negative.

(e) Calculated rate including excise taxes, additional fees levied per gallon (such as storage tank and environmental fees), local excise taxes, and

sales or gross receipts taxes.

(f) Includes a statewide local tax of 52 cents in Alabama and 53 cents in Georgia.

(g) May include taxes that are levied based on container size.

(h) These states outlaw private liquor sales and utilize state-run stores. These are called “control states,” while “license states” are those that permit

private wholesale and retail sales. All license states have an excise tax rate in law, expressed in dollars per gallon. Control states levy no statutory

tax but usually raise comparable revenue by charging higher prices. The Distilled Spirits Council of the U.S. has computed approximate excise tax

rates for control states by comparing prices of typical products sold in their state-run stores to the pre-tax prices of liquor in states where liquor

is privately sold. In New Hampshire, average liquor prices charged in state-run stores are lower than pre-tax prices in license states. Washington

privatized its liquor sales but enacted tax increases as a part of the package.

Source: Tax Foundation; Bloomberg Tax; American Petroleum Institute; Distilled Spirits Council of the United States; Federation of Tax

Administrators.

Tax Foundation | 69

Table 17. State Sales Tax Bases: Exemptions for Business-to-Business

Transactions (as of July 1, 2023)

Specific

Exemption

Farm

Equipment

Office

Equipment

Manufacturing

Machinery

Manufacturing

Raw Materials

Business Fuel

& Utilities

Business Lease

& Rentals

Information

Services

Alabama No Taxable Taxable Taxable Exempt Exempt Taxable Taxable

Alaska n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Arizona No Exempt Taxable Exempt Exempt Taxable Taxable Exempt

Arkansas No Exempt Taxable Exempt Exempt Partial Taxable Exempt

California No Partial Taxable Partial Exempt Taxable Taxable Exempt

Colorado No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Connecticut No Exempt Taxable Exempt Exempt Exempt Taxable Taxable

Delaware n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Florida No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Georgia No Exempt Taxable Exempt Exempt Partial Taxable Exempt

Hawaii No Taxable Taxable Taxable Taxable Taxable Taxable Taxable

Idaho No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Illinois No Exempt Taxable Exempt Exempt Exempt Exempt Exempt

Indiana No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Iowa No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Kansas No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Kentucky No Exempt Taxable Partial Exempt Exempt Taxable Exempt

Louisiana No Taxable Taxable Exempt Exempt Exempt Taxable Exempt

Maine No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Maryland No Exempt Taxable Exempt Exempt Exempt Taxable Taxable

Massachusetts No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Michigan No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Minnesota No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Mississippi No Partial Taxable Taxable Exempt Exempt Taxable Exempt

Missouri No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Montana n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Nebraska No Exempt Taxable Exempt Exempt Exempt Exempt Exempt

Nevada No Exempt Taxable Taxable Exempt Taxable Taxable Exempt

New Hampshire n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

New Jersey No Exempt Taxable Exempt Exempt Taxable Taxable Taxable

New Mexico No Taxable Taxable Exempt Exempt Exempt Taxable Taxable

New York No Exempt Taxable Exempt Exempt Exempt Taxable Taxable

North Carolina No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

North Dakota No Partial Taxable Taxable Exempt Taxable Taxable Exempt

Ohio No Exempt Taxable Exempt Exempt Exempt Taxable Taxable

Oklahoma No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Oregon n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Pennsylvania No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Rhode Island No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

South Carolina No Exempt Taxable Exempt Exempt Exempt Taxable Taxable

South Dakota No Taxable Taxable Taxable Exempt Taxable Taxable Taxable

Tennessee No Exempt Taxable Exempt Exempt Taxable Taxable Exempt

Texas No Exempt

Taxable Exempt Exempt Exempt Taxable Taxable

Utah No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Vermont No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Virginia No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Washington No Taxable Taxable Exempt Exempt Taxable Taxable Taxable

West Virginia No Exempt Taxable Exempt Exempt Exempt Taxable Taxable

Wisconsin No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

Wyoming No Exempt Taxable Exempt Exempt Exempt Taxable Exempt

District of Columbia No Taxable Taxable Taxable Exempt Exempt Taxable Taxable

Note: States with no state sales tax (AK, DE, MT, NH, and OR) are listed as “not applicable” (n.a.) within Table 17, although Alaska has a local

option sales tax.

Source: Tax Foundation; Bloomberg Tax; state statutes.

70 | State Business Tax Climate Index 2024

Table 18. State Sales Tax Bases: Consumer Goods and Services

(as of July 1, 2023)

Goods Services

Groceries Clothing

Prescription

Medication

Non-

Prescription

Medication Gasoline Legal Financial Accounting

Alabama Taxable Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Alaska n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Arizona Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Arkansas Alternate Rate Taxable Exempt Taxable Exempt Exempt Exempt Exempt

California Exempt Taxable Exempt Taxable Alternate Rate Exempt Exempt Exempt

Colorado Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Connecticut Exempt Taxable Exempt Exempt Exempt Exempt Exempt Exempt

Delaware n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Florida Exempt Taxable Exempt Exempt Taxable Exempt Exempt Exempt

Georgia Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Hawaii Taxable Taxable Exempt Taxable Taxable Taxable Taxable Taxable

Idaho Taxable Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Illinois Alternate Rate Taxable Alternate Rate Alternate Rate Taxable Exempt Exempt Exempt

Indiana Exempt Taxable Exempt Taxable Taxable Exempt Exempt Exempt

Iowa Exempt Taxable Exempt Taxable Exempt Exempt Taxable Exempt

Kansas Taxable Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Kentucky Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Louisiana Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Maine Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Maryland Exempt Taxable Exempt Exempt Exempt Exempt Exempt Exempt

Massachusetts Exempt Exempt Exempt Taxable Exempt Exempt Exempt Exempt

Michigan Exempt Taxable Exempt Taxable Taxable Exempt Exempt Exempt

Minnesota Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Mississippi Taxable Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Missouri Alternate Rate Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Montana n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Nebraska Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Nevada Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

New Hampshire n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

New Jersey Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

New Mexico Exempt Taxable Exempt Taxable Exempt Taxable Taxable Taxable

New York Exempt Exempt Exempt Exempt Taxable Exempt Exempt Exempt

North Carolina Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

North Dakota Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Ohio Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Oklahoma Taxable Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Oregon n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Pennsylvania Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Rhode Island Exempt Exempt Exempt Taxable Exempt Exempt Exempt Exempt

South Carolina Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

South Dakota Taxable Taxable Exempt Taxable Exempt Taxable Exempt Taxable

Tennessee Alternate Rate Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Texas Exempt Taxable Exempt Exempt Exempt

Exempt Exempt Exempt

Utah Alternate Rate Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Vermont Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Virginia Alternate Rate Taxable Exempt Exempt Exempt Exempt Exempt Exempt

Washington Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

West Virginia Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Wisconsin Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

Wyoming Exempt Taxable Exempt Taxable Exempt Exempt Exempt Exempt

District of Columbia Exempt Taxable Exempt Exempt Exempt Exempt Exempt Exempt

Notes: States with no state sales tax (AK, DE, MT, NH, and OR) are listed as “not applicable” (n.a.) within Table 18, although Alaska has a

local option sales tax. New York applies only local sales taxes to gasoline.

Source: Tax Foundation; Bloomberg Tax; state statutes.

Tax Foundation | 71

Table 18, Continued. State Sales Tax Bases: Consumer Goods and Services

(as of July 1, 2023)

Services

Medical Landscaping Repair

Real Estate

Services Parking

Dry

Cleaning Fitness Barber Veterinary

Alabama Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Alaska n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Arizona Exempt Taxable Exempt Exempt Taxable Exempt Taxable Exempt Exempt

Arkansas Exempt Taxable Taxable Exempt Taxable Taxable Taxable Exempt Exempt

California Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Colorado Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Connecticut Exempt Taxable Taxable Exempt Taxable Taxable Taxable Exempt Exempt

Delaware n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Florida Exempt Exempt Taxable Exempt Partial Exempt Taxable Exempt Exempt

Georgia Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Hawaii Taxable Taxable Taxable Taxable Exempt Taxable Taxable Taxable Taxable

Idaho Exempt Exempt Exempt Exempt Exempt Exempt Taxable Exempt Exempt

Illinois Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Indiana Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Iowa Exempt Taxable Taxable Exempt Taxable Taxable Taxable Taxable Exempt

Kansas Exempt Exempt Taxable Exempt Exempt Taxable Taxable Exempt Exempt

Kentucky Exempt Taxable Exempt Exempt Taxable Taxable Taxable Exempt Taxable

Louisiana Exempt Exempt Taxable Exempt Taxable Taxable Taxable Exempt Exempt

Maine Exempt Exempt Exempt Exempt Exempt Taxable Exempt Exempt Exempt

Maryland Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Massachusetts Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Michigan Exempt Exempt Exempt Exempt Exempt Taxable Exempt Exempt Exempt

Minnesota Exempt Taxable Exempt Exempt Taxable Taxable Taxable Exempt Exempt

Mississippi Exempt Taxable Taxable Exempt Taxable Taxable Exempt Exempt Exempt

Missouri Exempt Exempt Exempt Exempt Exempt Exempt Taxable Exempt Exempt

Montana n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Nebraska Exempt Taxable Taxable Exempt Exempt Exempt Exempt Exempt Exempt

Nevada Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

New Hampshire n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

New Jersey Exempt Taxable Taxable Exempt Taxable Exempt Taxable Exempt Exempt

New Mexico Taxable Taxable Taxable Taxable Taxable Taxable Taxable Taxable Taxable

New York Exempt Taxable Taxable Exempt Taxable Exempt Exempt Exempt Exempt

North Carolina Exempt Exempt Taxable Exempt Exempt Taxable Exempt Exempt Exempt

North Dakota Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Ohio Exempt Taxable Taxable Exempt Exempt Taxable Taxable Exempt Exempt

Oklahoma Exempt Exempt Exempt Exempt Taxable Exempt Taxable Exempt Exempt

Oregon n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Pennsylvania Exempt Taxable Taxable Exempt Exempt Taxable Exempt Exempt Exempt

Rhode Island Exempt Exempt

Exempt Exempt Exempt Exempt Exempt Exempt Exempt

South Carolina Exempt Exempt Exempt Exempt Exempt Taxable Exempt Exempt Exempt

South Dakota Exempt Taxable Taxable Taxable Taxable Taxable Taxable Taxable Taxable

Tennessee Exempt Exempt Taxable Exempt Taxable Taxable Exempt Exempt Exempt

Texas Exempt Taxable Taxable Exempt Taxable Taxable Taxable Exempt Exempt

Utah Exempt Exempt Taxable Exempt Exempt Taxable Taxable Exempt Exempt

Vermont Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Virginia Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt

Washington Exempt Taxable Taxable Exempt Taxable Taxable Taxable Exempt Taxable

West Virginia Exempt Taxable Taxable Exempt Taxable Taxable Exempt Exempt Exempt

Wisconsin Exempt Taxable Taxable Exempt Taxable Taxable Exempt Exempt Exempt

Wyoming Exempt Exempt Taxable Exempt Exempt Taxable Exempt Exempt Exempt

District of Columbia Exempt Taxable Taxable Exempt Taxable Taxable Taxable Exempt Exempt

Notes: States with no state sales tax (AK, DE, MT, NH, and OR) are listed as “not applicable” (n.a.) within Table 18, although Alaska has a

local option sales tax. New York applies only local sales taxes to gasoline.

Source: Tax Foundation; state statutes.

72 | State Business Tax Climate Index 2024

Table 19. Sales Tax Structure (as of July 1, 2023)

Uniform Base

Definitions

Unified Tax

Administration

Safe Harbor

for Remote Sellers

Alabama Yes No Gross Sales Threshold

Alaska No No n.a.

Arizona No Yes Gross Sales Threshold

Arkansas Yes Yes Sales or Transactions Threshold

California Yes Yes Gross Sales Threshold

Colorado No No Gross Sales Threshold

Connecticut Yes Yes Gross Sales Threshold

Delaware n.a. n.a. n.a.

Florida Yes Yes n.a.

Georgia Yes Yes Sales or Transactions Threshold

Hawaii Yes Yes Sales or Transactions Threshold

Idaho No Yes Gross Sales Threshold

Illinois Yes Yes Sales or Transactions Threshold

Indiana Yes Yes Sales or Transactions Threshold

Iowa Yes Yes Gross Sales Threshold

Kansas Yes Yes Gross Sales Threshold

Kentucky Yes Yes Sales or Transactions Threshold

Louisiana No No Sales or Transactions Threshold

Maine Yes Yes Gross Sales Threshold

Maryland Yes Yes Sales or Transactions Threshold

Massachusetts Yes Yes Gross Sales Threshold

Michigan Yes Yes Sales or Transactions Threshold

Minnesota Yes Yes Sales or Transactions Threshold

Mississippi Yes Yes Gross Sales Threshold

Missouri Yes Yes n.a.

Montana n.a. n.a. n.a.

Nebraska Yes Yes Sales or Transactions Threshold

Nevada Yes Yes Sales or Transactions Threshold

New Hampshire n.a. n.a. n.a.

New Jersey Yes Yes Sales or Transactions Threshold

New Mexico Yes Yes Gross Sales Threshold

New York Yes Yes Gross Sales Threshold

North Carolina Yes Yes Sales or Transactions Threshold

North Dakota Yes Yes Gross Sales Threshold

Ohio Yes Yes Sales or Transactions Threshold

Oklahoma Yes Yes Gross Sales Threshold

Oregon Yes n.a. n.a.

Pennsylvania Yes Yes Gross Sales Threshold

Rhode Island Yes Yes Sales or Transactions Threshold

South Carolina Yes Yes Gross Sales Threshold

South Dakota Yes Yes Gross Sales Threshold

Tennessee Yes Yes Gross Sales Threshold

Texas Yes Yes Gross Sales Threshold

Utah Yes Yes Sales or Transactions Threshold

Vermont Yes Yes Sales or Transactions Threshold

Virginia Yes Yes Sales or Transactions Threshold

Washington Yes Yes Gross Sales Threshold

West Virginia Yes Yes Sales or Transactions Threshold

Wisconsin Yes Yes Gross Sales Threshold

Wyoming Yes Yes Sales or Transactions Threshold

District of Columbia Yes Yes Sales or Transactions Threshold

Note: States that do not require remote sales tax collection are listed as “not applicable” (n.a.) within Table 19.

Source: Tax Foundation; state statutes.

Tax Foundation | 73

Table 20. State Property Tax Rates and Capital Stock Tax Rates

(as of July 1, 2023)

Property Tax

Collections per

Capita

Property Tax as

a Percentage of

Personal Income

Capital Stock

Tax Rate

Capital Stock

Max Payment

Payment Options

for CST and CIT

Alabama $660 1.38% 0.175% $15,000 Pay both

Alaska $2,327 3.63% None n.a. n.a.

Arizona $1,261 2.34% None n.a. n.a.

Arkansas $835 1.71% 0.3% Unlimited Pay both

California $2,087 2.83% None n.a. n.a.

Colorado $2,076 3.05% None n.a. n.a.

Connecticut $3,288 4.07% 0.31% $1,000,000 Pay highest

Delaware $1,658 1.75% 0.04% $200,000 Pay both

Florida $1,633 2.73% None n.a. n.a.

Georgia $1,402 2.60% (a) $5,000 Pay both

Hawaii $1,602 2.72% None n.a. n.a.

Idaho $1,124 2.21% None n.a. n.a.

Illinois $2,454 3.80% 0.1% $2,000,000 Pay both

Indiana $1,212 2.23% None n.a. n.a.

Iowa $1,939 3.51% None n.a. n.a.

Kansas $1,790 3.12% None n.a. n.a.

Kentucky $968 1.96% None n.a. n.a.

Louisiana $990 1.89% 0.275% Unlimited Pay both

Maine $2,849 5.04% None n.a. n.a.

Maryland $1,815 2.68% None n.a. n.a.

Massachusetts $2,799 3.45% 0.26% Unlimited Pay highest

Michigan $1,659 3.02% None n.a. n.a.

Minnesota $1,870 2.91% None n.a. n.a.

Mississippi $1,204 2.72% 0.15% Unlimited Pay both

Missouri $1,335 2.49% None n.a. n.a.

Montana $1,857 3.35% None n.a. n.a.

Nebraska $2,172 3.66% (a) $11,995 Pay both

Nevada $1,221 2.11% None n.a. n.a.

New Hampshire $3,318 4.68% None n.a. n.a.

New Jersey $3,538 4.76% None n.a. n.a.

New Mexico $935 1.93% None n.a. n.a.

New York $3,322 4.48% 0.1875% $5,000,000 Pay highest

North Carolina $1,129 2.09% 0.15% Unlimited Pay both

North Dakota $1,566 2.50% None n.a. n.a.

Ohio $1,550 2.81% None n.a. n.a.

Oklahoma $921 1.77% None n.a. n.a.

Oregon $1,815 3.07% None n.a. n.a.

Pennsylvania $1,679 2.69% None n.a. n.a.

Rhode Island $2,463 3.96% None n.a. n.a.

South Carolina $1,388 2.73% 0.1% Unlimited Pay both

South Dakota $1,669 2.67% None n.a. n.a.

Tennessee $929 1.71% 0.25% Unlimited Pay both

Texas $2,230 3.86% None n.a. n.a.

Utah $1,239 2.29% None n.a. n.a.

Vermont $3,001 4.96% None n.a. n.a.

Virginia $1,916 2.99% None n.a. n.a.

Washington $1,903 2.68% None n.a. n.a.

West Virginia $1,075 2.30% None n.a. n.a.

Wisconsin $1,781 3.08% None n.a. n.a.

Wyoming $2,164 3.20% 0.02% Unlimited Pay both

District of Columbia $3,012 5.19% None n.a. n.a.

(a) Based on a fixed dollar payment schedule. Effective tax rates decrease as taxable capital increases.

Note: States without a capital stock tax are listed as “not applicable” (n.a.) within Table 20.

Source: Tax Foundation calculations from U.S. Census Bureau data; Bloomberg Tax; state statutes.

74 | State Business Tax Climate Index 2024

Table 21. State Property Tax Bases (as of July 1, 2023)

Tangible

Personal

Property Tax

Intangible

Property Tax

Inventory

Tax

Real Estate

Transfer Tax

Split Roll

Ratio

Estate

Tax

Inheritance

Tax

Gift

Tax

Alabama Yes Yes No Yes 2.00 No No No

Alaska Yes No Partial No No Split Roll No No No

Arizona Yes No No No 1.80 No No No

Arkansas Yes No Yes Yes No Split Roll No No No

California Yes No No Yes No Split Roll No No No

Colorado Yes No No Yes 4.03 No No No

Connecticut Yes No No Yes 2.17 Yes No Yes

Delaware No No No Yes No Split Roll No No No

Florida Yes No No Yes No Split Roll No No No

Georgia Yes No Partial Yes No Split Roll No No No

Hawaii No No No Yes 3.54 Yes No No

Idaho Yes No No No No Split Roll No No No

Illinois No No No Yes 1.609 Yes No No

Indiana Yes No No No No Split Roll No No No

Iowa No Yes No Yes 1.662657814 No Yes No

Kansas Yes No No No 2.173913043 No No No

Kentucky Yes Yes Yes Yes No Split Roll No Yes No

Louisiana Yes Yes Yes No No Split Roll No No No

Maine Yes No No Yes No Split Roll Yes No No

Maryland Yes No Yes Yes No Split Roll Yes Yes No

Massachusetts Yes No Partial Yes No Split Roll Yes No No

Michigan Yes No Partial Yes No Split Roll No No No

Minnesota Partial No No Yes 1.60 Yes No No

Mississippi Yes Yes Yes No 1.50 No No No

Missouri Yes No No No 1.75 No No No

Montana Yes No No No 1.40 No No No

Nebraska Yes No No Yes No Split Roll No Yes No

Nevada Yes No No Yes No Split Roll No No No

New Hampshire Partial No No Yes No Split Roll No No No

New Jersey No No No Yes No Split Roll No Yes No

New Mexico Yes No No No No Split Roll No No No

New York No No No Yes 3.79 Yes No No

North Carolina Yes No No Yes No Split Roll No No No

North Dakota Partial No No No 1.11 No No No

Ohio No No No Yes No Split Roll No No No

Oklahoma Yes No Yes Yes 1.23 No No No

Oregon Yes No No No No Split Roll Yes No No

Pennsylvania No No No Yes No Split Roll No Yes No

Rhode Island Partial No No Yes No Split Roll Yes No No

South Carolina Yes No No Yes 1.50 No No No

South Dakota Partial Yes No Yes No Split Roll No No No

Tennessee Yes Yes No Yes 1.60 No No No

Texas Yes

Yes Yes No No Split Roll No No No

Utah Yes No No No 1.82 No No No

Vermont Yes No Partial Yes No Split Roll Yes No No

Virginia Yes No Yes Yes No Split Roll No No No

Washington Yes No No Yes No Split Roll Yes No No

West Virginia Yes No Yes Yes No Split Roll No No No

Wisconsin No No No Yes No Split Roll No No No

Wyoming Yes No No No 1.21 No No No

District of Columbia Yes No No Yes 2.08 Yes No No

Note: Split roll ratio represents the ratio between commercial and residential property taxes.

Source: Tax Foundation; Bloomberg Tax; state statutes.

Tax Foundation | 75

Table 22. State Unemployment Insurance Tax Rates (as of July 1, 2023)

Minimum

Rate

Maximum

Rate

Taxable

Wage Base

Most Favorable Schedule Least Favorable Schedule

State Minimum Rate Maximum Rate Minimum Rate Maximum Rate

Alabama 0.20% 5.40% $8,000 0.14% 5.40% 0.65% 6.80%

Alaska 1.00% 5.40% $47,100 1.00% 6.50% 1.00% 6.50%

Arizona 0.07% 18.78% $8,000 0.02% 5.40% 0.02% 5.40%

Arkansas 0.30% 14.20% $7,000 0.10% 6.00% 0.08% 14.30%

California 1.50% 6.20% $7,000 0.10% 5.40% 1.50% 6.20%

Colorado 0.75% 10.39% $20,400 0.51% 6.28% 0.75% 10.39%

Connecticut 1.70% 6.60% $15,000 0.50% 5.40% 0.50% 5.40%

Delaware 0.30% 5.60% $10,500 0.10% 8.00% 0.10% 8.00%

Florida 0.10% 5.40% $7,000 0.10% 5.40% 0.10% 5.40%

Georgia 0.06% 8.10% $9,500 0.01% 5.40% 0.04% 8.10%

Hawaii 1.21% 6.20% $56,700 0.00% 5.40% 2.40% 6.60%

Idaho 0.21% 5.40% $49,900 0.18% 5.40% 0.96% 6.80%

Illinois 0.85% 8.65% $13,271 0.20% 6.40% 0.20% 6.40%

Indiana 0.50% 7.40% $9,500 0.00% 5.40% 0.75% 10.20%

Iowa 0.00% 7.00% $36,100 0.00% 7.0 0% 0.00% 9.00%

Kansas 0.17% 6.40% $14,000 0.20% 7.60% 0.20% 7.60%

Kentucky 0.30% 9.00% $11,100 0.00% 9.00% 1.00% 10.00%

Louisiana 0.90% 6.20% $7,700 0.09% 6.00% 0.09% 6.00%

Maine 0.22% 5.69% $12,000 0.00% 5.40% 0.00% 5.40%

Maryland 1.00% 10.50% $8,500 0.30% 7.50% 2.20% 13.50%

Massachusetts 1.32% 19.57% $15,000 0.56% 8.62% 1.21% 18.55%

Michigan 0.06% 10.30% $9,500 0.00% 6.30% 0.00% 6.30%

Minnesota 0.20% 9.10% $40,000 0.10% 9.00% 0.40% 9.40%

Mississippi 0.20% 5.60% $14,000 0.00% 5.40% 0.20% 5.40%

Missouri 0.00% 6.00% $10,500 0.00% 5.40% 0.00% 7.80%

Montana 0.13% 6.12% $40,500 0.00% 6.12% 1.62% 6.12%

Nebraska 0.00% 5.40% $9,000 0.00% 5.40% 0.00% 5.40%

Nevada 0.00% 5.40% $40,100 0.25% 5.40% 0.25% 5.40%

New Hampshire 0.10% 8.50% $14,000 0.10% 7.0 0% 0.10% 8.50%

New Jersey 0.60% 6.40% $41,100 0.30% 5.40% 1.30% 7.70%

New Mexico 0.33% 6.40% $30,100 0.33% 5.40% 0.33% 5.40%

New York 2.10% 9.90% $12,300 0.00% 5.90% 1.50% 8.90%

North Carolina 0.06% 5.76% $29,600 0.06% 5.76% 0.06% 5.76%

North Dakota 0.80% 9.97% $40,800 0.01% 5.40% 0.01% 5.40%

Ohio 0.80% 10.30% $9,000 0.00% 6.30% 0.30% 6.70%

Oklahoma 0.30% 9.20% $25,700 0.01% 5.50% 0.30% 9.20%

Oregon 0.70% 5.40% $40,100 0.50% 5.40% 2.20% 5.40%

Pennsylvania 1.42% 10.37% $10,000 0.00% 8.95% 0.00% 8.95%

Rhode Island 1.10% 9.70% $28,200 0.21% 7.4 0% 1.20% 10.00%

South Carolina 0.06% 5.46% $14,000 0.00% 5.40% 0.00% 5.40%

South Dakota 0.00% 9.85% $15,000 0.00% 9.30% 0.00% 9.45%

Tennessee 0.01% 10.00% $7,000 0.01% 10.00% 0.50% 10.00%

Texas 0.23% 6.23% $9,000 0.00% 6.00% 0.00% 6.00%

Utah 0.30% 7.30% $44,800 0.00% 7.0 0% 0.00% 7.00%

Vermont 0.40% 5.40% $13,500 0.40% 5.40% 1.30% 8.40%

Virginia 0.13% 6.23% $8,000 0.00% 5.40% 0.00% 6.20%

Washington 0.27% 6.03% $67,600 0.00% 5.40% 0.00% 5.70%

West Virginia 1.50% 8.50% $9,000 0.00% 7.5 0% 1.50% 7.50%

Wisconsin 0.00% 12.00% $14,000 0.00% 10.70% 0.07% 10.70%

Wyoming 0.28% 8.50% $29,100 0.00% 8.50% 0.00% 8.50%

District of Columbia 1.80% 7.20% $9,000 0.10% 5.40% 1.90% 7.40%

Source: National Foundation for Unemployment Compensation & Workers’ Compensation, Highlights of State Unemployment

Compensation Laws (2022); U.S. Department of Labor, Comparison of State Unemployment Insurance Laws (2021).

76 | State Business Tax Climate Index 2024

Table 23. State Unemployment Insurance Tax Bases: Experience Formulas and

Charging Methods (as of July 1, 2023)

State

Experience

Formula Based On

Benefits Are

Charged to

Employers in

Proportion to

Base Period

Wages

Company Charged for Benefits If

Employee’s

Benefit

Award

Reversed

Reimbursements

on Combined

Wage Claims

Employee

Left

Voluntarily

Employee

Discharged

for

Misconduct

Employee

Refused

Suitable

Work

Employee

Continues

to Work for

Employer

Part-Time

Alabama Benefits Ratio Yes No Yes No No Yes No

Alaska Payroll Decline n.a. n.a. n.a. n.a n.a. n.a. n.a.

Arizona Reserve Ratio Yes No No No No Yes No

Arkansas Reserve Ratio Yes No Yes No No Yes No

California Reserve Ratio Yes No Yes No No Yes No

Colorado Reserve Ratio No (a) No No No No Yes No

Connecticut Benefits Ratio Yes No No No No No No

Delaware Benefit Wage Ratio Yes No No No No No No

Florida Benefits Ratio Yes No Yes No No No No

Georgia Reserve Ratio No (b) No No No No No Yes

Hawaii Reserve Ratio Yes Yes No No No No No

Idaho Reserve Ratio No (c) No No No No Yes No

Illinois Benefits Ratio No (b) No No No No No No

Indiana Reserve Ratio No (a) No No No No Yes No

Iowa Benefits Ratio No (a) No No No No No No

Kansas Reserve Ratio Yes Yes Yes No No Yes No

Kentucky Reserve Ratio No (b) Yes No No No No No

Louisiana Reserve Ratio Yes No No No No No No

Maine Reserve Ratio No (b) No Yes No No No No

Maryland Benefits Ratio Yes No Yes No Yes Yes No

Massachusetts Reserve Ratio No (a) No Yes Yes Yes Yes No

Michigan Benefits Ratio Yes Yes No No No No No

Minnesota Benefits Ratio Yes No No No No Yes No

Mississippi Benefits Ratio Yes Yes Yes No No No No

Missouri Reserve Ratio Yes No No No No No No

Montana Reserve Ratio Yes No Yes No No Yes No

Nebraska Reserve Ratio No (a) No Yes No No Yes No

Nevada Reserve Ratio No (c) Yes No No No Yes Yes

New Hampshire Reserve Ratio No (b) No No No No No No

New Jersey Reserve Ratio Yes No Yes No No No Yes

New Mexico Benefits Ratio Yes No Yes No No No No

New York Reserve Ratio Yes No Yes No No Yes No

North Carolina Reserve Ratio Yes Yes Yes No No Yes No

North Dakota Reserve Ratio Yes No Yes No No Yes No

Ohio Reserve Ratio Yes No No No No No No

Oklahoma Benefit Wage Ratio Yes No Yes No No No No

Oregon Benefits Ratio Yes No No No No Yes No

Pennsylvania Benefits Ratio Yes No No No No Yes No

Rhode Island Reserve Ratio No No No No No No No

South Carolina Benefits Ratio No (b) No No No No No No

South Dakota Reserve Ratio No (a) No

Yes No No Yes Yes

Tennessee Reserve Ratio Yes No No No No Yes No

Texas Benefits Ratio Yes No Yes No No Yes Yes

Utah Benefits Ratio Yes No No No No Yes No

Vermont Benefits Ratio Yes No No No No No No

Virginia Benefits Ratio No (b) Yes No Yes Yes Yes Yes

Washington Benefits Ratio Yes Yes Yes No No Yes No

West Virginia Reserve Ratio Yes No Yes No No Yes No

Wisconsin Reserve Ratio Yes Yes No No No No Yes

Wyoming Benefits Ratio Yes No Yes No No Yes No

District of Columbia Reserve Ratio Yes Yes Yes No No Yes No

(a) Benefits charged to base-period employers, most recent first (inverse order).

(b) Benefits charged to most recent employer.

Note: Alaska uses a payroll decline experience formula, so other features are listed as not applicable (n.a.).

Source: National Foundation for Unemployment Compensation & Workers’ Compensation, Highlights of State Unemployment Compensation

Laws (2022).

Tax Foundation | 77

Table 24. State Unemployment Insurance Tax Bases: Other Variables

(as of July 1, 2023)

State

Solvency

Tax

Taxes for

Socialized

Costs or

Negative

Balance

Employer

Loan and

Interest

Repayment

Surtaxes

Reserve

Taxes

Surtaxes for UI

Administration

or Non-UI

Purposes

Temporary

Disability

Insurance

Voluntary

Contributions

Time

Period to

Qualify for

Experience

Rating

(Years)

Alabama No Yes Yes No Yes No No 1

Alaska Yes No No No Yes No No 1

Arizona No No Yes No No No Yes 2

Arkansas Yes No Yes No Yes No Yes 3

California Yes No No No Yes Yes Yes 1

Colorado Yes No Yes No No No Yes 1

Connecticut Yes No Yes No No No No 1

Delaware Yes No Yes No Yes No No 2

Florida No No Yes No No No No 2.5

Georgia Yes No No No Yes No Yes 3

Hawaii No No Yes No Yes Yes No 1

Idaho No No Yes Yes Yes No No 1.5

Illinois Yes No No No No No No 3

Indiana No No No No No No Yes 3

Iowa No No Yes Yes No No No 3

Kansas Yes No No No No No Yes 2

Kentucky No No Yes No Yes No Yes 3

Louisiana Yes Yes Yes No No No Yes 2

Maine No No Yes No Yes No Yes 2

Maryland No No No No No No No 2

Massachusetts Yes No No No Yes No Yes 3

Michigan No Yes Yes No No No Yes 1

Minnesota Yes No Yes No Yes No Yes 1

Mississippi No No No No Yes No No 3

Missouri Yes No Yes No No No Yes 2

Montana No No No No Yes No No 3

Nebraska No No No Yes No No Yes 1

Nevada No No Yes No Yes No No 3

New Hampshire Yes No No No Yes No No 1

New Jersey Yes No Yes No Yes Yes Yes 3

New Mexico No No No No No No Yes 2

New York Yes No Yes No Yes Yes Yes 1.25

North Carolina Yes No No Yes No No Yes 2

North Dakota No No No No No No Yes 1

Ohio Yes No No No No No Yes 1.25

Oklahoma Yes No No No Yes No No 2

Oregon No No Yes No Yes No No 1

Pennsylvania Yes No Yes No No No Yes 1.5

Rhode Island No No No No Yes No Yes 3

South Carolina No No Yes No Yes No No 1

South Dakota Yes No No No Yes

No Yes 2

Tennessee Yes No Yes No No No No 3

Texas Yes Yes Yes No Yes No Yes 1.5

Utah No Yes No No No No No 1

Vermont No No No No No No No 1

Virginia Yes Yes No No No No No 1

Washington Yes Yes Yes No Yes No Yes 1.5

West Virginia No No Yes No No No Yes 3

Wisconsin Yes No Yes No Yes No Yes 3

Wyoming Yes Yes No No Yes No No 3

District of Columbia No No Yes No Yes No No 3

Source: National Foundation for Unemployment Compensation & Workers' Compensation, Highlights of State Unemployment

Compensation Laws (2022); U.S. Department of Labor, Comparison of State Unemployment Laws (2021).

About the Tax Foundation

The Tax Foundation is the nation’s leading independent tax policy research organization.

Since 1937, our research, analysis, and experts have informed smarter tax policy at the

federal, state, and global levels. Our Center for State Tax Policy uses research to foster

competition among the states and advises policymakers on how to improve their tax

systems.

Center for State Tax Policy

Jared Walczak

VP of State Projects

Adam Hoffer

Director of Excise Tax Policy

Katherine Loughead

Senior Policy Analyst

Manish Bhatt

Senior Policy Analyst

Andrey Yushkov

Senior Policy Analyst

The Tax Foundation’s State Business Tax

Climate Index enables business leaders,

government policymakers, and taxpayers

to gauge how their states’ tax systems

compare. While there are many ways to

show how much is collected in taxes by

state governments, the Index is designed

to show how well states structure their

tax systems, and provides a road map to

improving these structures.

The Tax Foundation is the nation’s leading independent tax

policy research organization. Since 1937, our principled research,

insightful analysis, and engaged experts have informed smarter

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