Low corporate income taxes encourage business investment and expansion. By comparing North Carolina’s tax rates to that of other states we can better understand how the state may compete for those investments. The map below uses data collected by the Tax Foundation to compare the highest state corporate income tax marginal rates for the years 2011 to 2020. As the recent map shows, North Carolina’s low corporate tax rate gives us an advantage over other states in our region, and we’ve come a long way since 2011.
North Carolina’s corporate income tax rate fell from a highest marginal rate of 6.9 percent in 2011 to its current low of 2.5 percent in 2020.
The maps display each state’s top marginal corporate income tax rates. Alaska has the highest number of corporate tax brackets with 10, ranging from 0 to 9.4 percent. Several states – including North Carolina – have a flat rate for all corporations.
In 2011, Iowa had the highest marginal corporate income tax rate at 12 percent while Colorado had the lowest (of states that had them) at 4.63 percent. By 2020, North Carolina has become the lowest of state that levy one, at 2.5 percent, while Iowa remains the highest at 12 percent.
Six states do not currently impose a direct corporate income tax: Ohio, Oregon, Nevada, Texas, Washington, and Wyoming. In 2011, seven states had no corporate income tax, including Michigan and South Dakota, while Oregon did levy one at that time.
The next frontier for expanding the economy is to eliminate the corporate income tax altogether. The ongoing government-imposed state shutdown (in response to the COVID-19 pandemic) will inevitably lead to budget holes that must be resolved in the short term. But once the immediate crisis is addressed, and the state economy continues to recover, research suggests an elimination of the corporate income tax during a recession could help accelerate that effort.
In addition, eliminating the corporate income tax would level the playing field for companies that currently vie for government handouts in the form of targeted tax incentives. Instead of having the government select winners and losers, broad tax relief would encourage job and paycheck growth in North Carolina. Read more about that here.