Corporate tax is imposed in the United States at the federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Since January 1, 2018, the nominal federal corporate tax rate in the United States of America is a flat 21% following the passage of the Tax Cuts and Jobs Act of 2017. State and local taxes and rules vary by jurisdiction, though many are based on federal concepts and definitions.

Taxable income may differ from book income both as to timing of income and tax deductions and as to what is taxable. The corporate Alternative Minimum Tax was also eliminated by the 2017 reform, but some states have alternative taxes. Like individuals, corporations must file tax returns every year. They must make quarterly estimated tax payments. Groups of corporations controlled by the same owners may file a consolidated return.

Some corporate transactions are not taxable. These include most formations and some types of mergers, acquisitions, and liquidations. Shareholders of a corporation are taxed on dividends distributed by the corporation. Corporations may be subject to foreign income taxes, and may be granted a foreign tax credit for such taxes.

Shareholders of most corporations are not taxed directly on corporate income, but must pay tax on dividends paid by the corporation. However, shareholders of S corporations and mutual funds are taxed currently on corporate income, and do not pay tax on dividends.

Almost half of all private employment in the United States is within businesses that do not pay a corporate tax, but which rather pass the business income through to the owners’ individual income taxes.

Nearly all of the states and some localities impose a tax on corporation income. The rules for determining this tax vary widely from state to state. Many of the states compute taxable income with reference to federal taxable income, with specific modifications. The states do not allow a tax deduction for income taxes, whether federal or state. Further, most states deny tax exemption for interest income that is tax exempt at the federal level. CIT rates range from 1% to 12%, varying for every state. The most common federal taxable income is based on apportionment formulae. State and municipal taxes are deductible expenses for federal income tax purposes.

Most states tax domestic and foreign corporations on taxable income derived from business activities apportioned to the state on a formulary basis. Many states apply a “throw back” concept to tax domestic corporations on income not taxed by other states. Tax treaties do not apply to state taxes.

Under the U.S. Constitution, states are prohibited from taxing the income of a resident of another state unless the connection with the taxing state reaches a certain level (called “nexus”). Most states do not tax non-business income of out-of-state corporations. Since the tax must be fairly apportioned, states and localities compute how much income earned by out-of-state corporations (including those in foreign countries) is taxable in the state by applying formulary apportionment to the total business taxable income of the corporation. Many states use a formula based on ratios of property, payroll, and sales within the state compared to those items outside the state.

•  Corporate income taxes are levied in 44 states across the United States.
•  The top corporate tax rates range from a low of 2.5% in North Carolina to a high of 9.8% in Minnesota.
•  Four states, namely Alaska, Illinois, Minnesota, and New Jersey, have top marginal corporate income tax rates of 9% or higher.
•  Twelve states, including Arizona, Arkansas, Colorado, Indiana, Kentucky, Mississippi, Missouri, North Carolina, North Dakota, Oklahoma, South Carolina, and Utah, have top rates at or below 5%.
•  States like Nevada, Ohio, Texas, and Washington impose gross receipts taxes instead of corporate income taxes.
•  Delaware, Oregon, and Tennessee impose gross receipts taxes in addition to their corporate income taxes.
•  South Dakota and Wyoming do not levy a corporate income nor gross receipts tax.
•  Corporate income taxes accounted for only 7.07% of state tax collections and 3.32% of state general revenue in fiscal year 2021.
•  Notably, New Jersey, which had the highest corporate rate in the country of 11.5% from 2021-2023, now has the fourth-highest rate at 9%, following the expiration of the state’s 2.5 percentage-point corporation business tax surcharge at the end of 2023.
•  Pennsylvania is currently phasing down its corporate tax rate from 9.99% to eventually 4.99%.
•  For a comprehensive list of corporate tax rates by state, including specific rules and conditions, you can refer to the Tax Foundation’s detailed overview or Tax-Rates.org’s compilation.