Several states — including Arkansas, Colorado, Indiana, Iowa and Mississippi — have reduced corporate income taxes in recent years and plan to cut further, while New Jersey retroactively increased and extended its surcharge on corporate taxable income exceeding $1 million, according to a Tax Foundation study.
Corporate income tax rates in 44 states range from 2.5% in North Carolina to 11.5% in New Jersey, with Alaska, Illinois, Iowa, Minnesota and Pennsylvania also imposing top marginal tax rates of 9% or higher, according to the study.
Ten states levy top corporate income tax rates at or below 5%: Arizona, Colorado, Florida, Kentucky, Mississippi, Missouri, North Carolina, North Dakota, South Carolina and Utah, Tax Foundation said.
The sharp recession last year caused by the coronavirus undercut state tax revenue by approximately $22 billion as of the end of fiscal year 2020, which in most states was in June, according to a report by the Center on Budget and Policy Priorities.
States face challenges in funding services such as education and health care and, as of October, both states and localities had furloughed or laid off 1.2 million workers, the center said.
"Shortfalls faced by states, localities, tribal nations and U.S. territories will reach between about $480 billion and $620 billion through 2022, and could reach even higher in the event of a double-dip recession," the center said.
President Biden has proposed $350 billion in aid to state and local governments as part of a proposed $1.9 trillion package of coronavirus relief. A $618 billion counter proposal released by 10 Republican senators on Feb. 1 does not include such aid.
Despite budget strains, several states have trimmed corporate income taxes and plan more cuts, the Tax Foundation said.
Colorado voters in November approved a reduction in the corporate income tax to 4.55% from 4.63% retroactive to Jan. 1, 2020. Indiana cut its rate to 5.25% on July 1, 2020, and plans a reduction to 4.9% on July 1, 2021, according to the Tax Foundation study.
Nevada, Ohio, Texas and Washington collect gross receipts taxes instead of corporate income taxes. South Dakota and Wyoming are the only states that levy neither a gross receipts tax nor a corporate income tax, the study said.