Corporations may be expected to pay two types of income tax depending on the state where they’re registered. Every business is responsible for paying federal corporate taxes, and some states will be responsible for paying state corporate taxes.
Corporate tax rates vary from state to state. Some states use a flat rate, some use a bracket system, and some don’t have any corporate tax requirements. Here’s what you need to know about corporate tax rates by state and how Mosey can help you remain compliant.
Which States Do Not Have State Corporate Tax?
Texas, Washington, Nevada, Wyoming, South Dakota, and Ohio do not impose state corporate taxes on businesses registered within the state. Businesses in these states are subject to other tax responsibilities that may be unique to the state or region of the state they’re established within.
Some states forgo corporate taxes in an effort to encourage new businesses or startups to establish themselves within the state. New corporations pave the way for innovation and job creation, and the theory is that reducing the tax burden on new corporations gives them an incentive to revitalize or strengthen local economies.
Businesses in these states must still comply with federal corporate tax rules. The federal corporate tax rate was recently lowered to 21%, although corporations often pay substantially less after taking deductions and utilizing tax breaks made available through IRS rules.
What Are States with Flat Corporate Tax Rates?
There are two ways to approach corporate tax rates. Some states use a bracketed system where corporations with higher net incomes are taxed at progressively higher rates. Most states use a flat tax system, meaning that all next corporate income is taxed at the same rate regardless of the income a corporation generates.
A flat corporate tax rate means that a small business that generates $200,000 in profit yearly would be taxed at the same rate as a larger corporation that generates $3,000,000 yearly.
- Alabama - 6.5%
- Arizona - 4.9%
- California - 8.84%
- Colorado - 4.4%
- Connecticut - 7.5%
- Delaware - 8.7%
- Florida - 5.5%
- Georgia - 5.75%
- Idaho - 5.8%
- Illinois - 9.5%
- Indiana - 4.9%
- Kentucky - 5%
- Maryland - 8.25%
- Massachusetts - 8%
- Michigan - 6%
- Minnesota - 9.8%
- Missouri - 4%
- Montana - 6.75%
- New Hampshire - 7.5%
- North Carolina - 2.5%
- Oklahoma - 4%
- Pennsylvania - 8.49%
- Rhode Island - 7%
- South Carolina - 5%
- Tennessee - 6.5%
- Utah - 4.65%
- Virginia - 6%
- West Virginia - 6.5%
- Wisconsin - 7.9%
- Washington D.C. - 8.25%
Flat rate systems are the easiest to understand. Corporations will work with a standard percentage regardless of their overall income.
Corporations that do not generate a profit will not have taxable income. It’s not uncommon for a corporation to take several years to become profitable. You won’t owe state corporate tax until the first year you generate a profit.
What States Have Bracketed Corporate Tax Rates?
Corporate tax rate brackets work differently in every state that utilizes a bracket system. In all cases, corporations that generate more net income will pay proportionately more in corporate taxes.
Alaska
Alaska has one of the most complicated bracketed corporate tax rates. Their 10-tier system is intended to keep corporate taxes equitably based on corporate income.
0.0% > $0
2% > $25,000
3% > $49,000
4% > $74,000
5% > $99,000
6% > $124,000
7% > $148,000
8% > $173,000
9% > $198,000
9.4% > $222,000
Arkansas
The simple corporate tax rate bracket utilized by Arkansas is designed to provide tax breaks to smaller “mom and pop” businesses.
1% > $0
2% > $3,000
3% > $6,000
4.8% > $11,000
Hawaii
Hawaii’s corporate tax rate bracket is concise but utilizes a considerable jump for corporations making more than $100,000 a year in net profit.
4.4% > $0
5.4% > $25,000
6.4% > $100,000
Kansas
Kansas only utilizes two tax brackets for corporations in the state.
3.5% > $0
6.5% > $50,000
Louisiana
Louisiana’s corporate tax bracket favors small to medium businesses.
3.5% > $0
5.5% > $50,000
7.5% > $150,000
Maine
Maine has one of the most unique corporate tax bracket systems that seems to heavily emphasize higher taxes on multi-million dollar corporations within the state.
3.5% > $0
7.93% > $350,000
8.33% > $1,050,000
9.93% > $3,500,000
Mississippi
Mississippi utilizes two tax tiers that begin at low-profit thresholds.
4% > $5,000
55% > $10,000
Nebraska
Nebraska has a highly specific two-tiered system.
5.58% > $0
5.84% > $100,000
New Jersey
New Jersey’s corporate tax rates are on a three-tiered system with incremental increases.
6.5% > $0
7.5% > $50,000
9% > $100,000
New Mexico
New Mexico’s tax system utilizes a slight increase for its second tier.
4.8% > $0
5.9% > $500,000
New York
Most small to medium corporations in New York will pay the same amount in taxes, with an increase only for the state’s most profitable corporations.
6.5% > $0
7.25% > $5,000,000
North Dakota
North Dakota’s corporate tax rates are among the lowest in the country.
1.41% > $0
3.55% > $25,000
4.31% > $50,000
Oregon
Oregon utilizes two tax brackets: One for most businesses in the state and a slightly elevated bracket for the most financially successful corporations.
6.6% > $0
7.6% > $1,000,000
Vermont
Vermont’s three tax brackets are grouped together very closely.
6% > $0
7% > $10,000
8.5% > $25,000
It’s important to note that state corporate tax rates are subject to change.
Many state corporate tax rates have been reduced in recent years to favor new corporations and economic growth. Many states are adopting low flat rates for corporate taxes, while some have done away with corporate taxes. It’s more likely that rates will continue to decrease or brackets will become more generous with time.
Some states, like Nebraska, have plans to slowly transition to a lower flat tax in the coming years. New Jersey recently allowed a tax increase to expire, bringing down the top bracket from 11.5 percent to a slightly more generous nine percent for larger corporations.
It’s important to check for the latest information every year as states continue to shift tax laws depending on local economic needs and the desire to create more jobs. The corporate tax rate you pay this year may be higher than the rate you’ll pay next year if the trend continues downward.
Do All Corporations Have to Pay State Corporate Tax?
All income from a corporation is taxable, but how you pay taxes largely depends on the structure of your corporation. For example, an S corporation won’t have to pay corporate taxes if all profits are distributed among members and reported on individual tax returns. Individual rates may be lower than corporate rates, depending on your unique situation.
Sole proprietorships and single-member LLCs can treat any corporations they establish as pass-through businesses, assigning corporate profits as individual business income for tax purposes.
The best business decision will vary from situation to situation. We recommend consulting with a tax professional in your state regarding the most advantageous way to approach your taxes given your unique circumstances.
How Can You Minimize State Corporate Tax Liability?
Minimizing tax liability is a highly important issue for corporations all over the United States. It can help corporations reinvest more net profits into growth, expansion of offerings, and job creation.
Every state has different rules for reducing tax liability. It’s important to work with a local tax expert who is highly familiar with the tax laws in your state to determine the best options available to you.
Maintaining Tax Compliance with Mosey
Smaller or newer corporations often have tight-knit teams, each member wearing many hats. There’s much to do, especially if you intend to grow your business or lead innovation.
Keeping track of tax compliance is just one more thing on an ever-growing list of compliance issues corporations must manage efficiently. Let Mosey take on some of your workload.
Mosey’s automated compliance solutions are designed to help corporations of all sizes manage key compliance issues. You can spend more time interacting with customers, expanding, or innovating while Mosey runs in the background to keep you on track.
Schedule a demo with Mosey to learn how we can streamline the process of managing compliance for your business.
