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U.S. state In the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state ...
s collect a state income tax in addition to
federal Federal or foederal (archaic) may refer to: Politics General *Federal monarchy, a federation of monarchies *Federation, or ''Federal state'' (federal system), a type of government characterized by both a central (federal) government and states or ...
income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelate ...
. The two are separate entities. Some local governments also impose an income tax, often based on state income tax calculations. Forty-two
states State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, Un ...
and many localities in the United States impose an
income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelate ...
on individuals. Eight states impose no state income tax, and a ninth,
New Hampshire New Hampshire ( ) is a U.S. state, state in the New England region of the United States. It is bordered by Massachusetts to the south, Vermont to the west, Maine and the Gulf of Maine to the east, and the Canadian province of Quebec to the nor ...

New Hampshire
, imposes an individual income tax on
dividend A dividend is a distribution of profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit ...

dividend
s and
interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availa ...

interest
income but not other forms of income. Forty-seven states and many localities impose a tax on the income of corporations. State income tax is imposed at a fixed or graduated rate on taxable income of individuals, corporations, and certain estates and trusts. The rates vary by state.
Taxable income Taxable income refers to the base upon which an income tax system imposes tax. In other words, the income over which the government imposed tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. Th ...
conforms closely to federal taxable income in most states, with limited modifications. The states are prohibited from taxing income from federal bonds or other obligations. Most do not tax Social Security benefits or interest income from obligations of that state. Several states require different useful lives and methods be used by businesses in computing the deduction for
depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

depreciation
. Many states allow a
standard deduction Under United States tax law, the standard deduction is a dollar amount that non- itemizers may subtract from their income before income tax (but not other kinds of tax, such as payroll tax) is applied. Taxpayers may choose either itemized deduct ...
or some form of
itemized deductions Under United States tax law The United States of America The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consi ...
. States allow a variety of
tax credit A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state (polity), state. It may also be a credit granted in recognition of taxes already paid or a for ...
s in computing tax. Each state administers its own tax system. Many states also administer the tax return and collection process for localities within the state that impose income tax. State income tax is allowed as a deduction in computing federal income tax, subject to limitations for individuals.


Basic principles

State tax rules vary widely. The tax rate may be fixed for all income levels and taxpayers of a certain type, or it may be graduated. Tax rates may differ fo
individuals
an

Most states conform to federal rules for determining: *
gross income For households and individuals, gross income is the sum of all wages A wage is the distribution from an employer Employment is the relationship between two party (law), parties, usually based on a employment contract, contract where wo ...
, *timing of recognition of income and
deductions Deduction may refer to: Philosophy * Deductive reasoning, inference in which the conclusion is of greater generality than the premises * Natural deduction, an approach to proof theory that attempts to provide a formal model of logical reasoning as ...

deductions
, *most aspects of business deductions, *characterization of business entities as either corporations, partnerships, or disregarded. Gross income generally includes all income earned or received from whatever source, with exceptions. The states are prohibited from taxing income from federal bonds or other obligations. Most states also exempt income from bonds issued by that state or localities within the state, as well as some portion or all of Social Security benefits. Many states provide
tax exemption Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, reduc ...
for certain other types of income, which varies widely by state. The states imposing an income tax uniformly allow reduction of gross income for
cost of goods sold Cost of goods sold (COGS) is the carrying value In accounting, book value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization ...
, though the computation of this amount may be subject to some modifications. Most states provide for modification of both business and non-business deductions. All states taxing business income allow deduction for most business expenses. Many require that
depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

depreciation
deductions be computed in manners different from at least some of those permitted for federal income tax purposes. For example, many states do not allow the additional first year depreciation deduction. Most states tax
capital gain Capital gain is an economic concept defined as the profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial an ...
and dividend income in the same manner as other investment income. In this respect, individuals and corporations not resident in the state generally are not required to pay any income tax to that state with respect to such income. Some states have alternative measures of tax. These include analogs to the federal Alternative Minimum Tax in 14 states, as well as measures for corporations not based on income, such as capital stock taxes imposed by many states. Income tax is self assessed, and individual and corporate taxpayers in all states imposing an income tax must file tax returns in each year their income exceeds certain amounts determined by each state. Returns are also required by partnerships doing business in the state. Many states require that a copy of the federal income tax return be attached to at least some types of state income tax returns. The time for filing returns varies by state and type of return, but for individuals in many states is the same (typically April 15) as the federal deadline. Every state, including those with no income tax, has
state taxing authority
with power to examine (audit) and adjust returns filed with it. Most tax authorities have appeals procedures for audits, and all states permit taxpayers to go to court in disputes with the tax authorities. Procedures and deadlines vary widely by state. All states have a
statute of limitations A statute of limitations, known in civil law (legal system), civil law systems as a prescriptive period, is a law passed by a legislature, legislative body to set the maximum time after an event within which legal proceedings may be initiated. In t ...
prohibiting the state from adjusting taxes beyond a certain period following filing returns. All states have tax collection mechanisms. States with an income tax require employers to withhold state income tax on wages earned within the state. Some states have other withholding mechanisms, particularly with respect to partnerships. Most states require taxpayers to make quarterly payments of tax not expected to be satisfied by
withholding tax Tax withholding, also known as tax retention, Pay-as-You-Go, Pay-as-You-Earn, or a ''Prélèvement à la source'', is income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by t ...
. All states impose penalties for failing to file required tax returns and/or pay tax when due. In addition, all states impose interest charges on late payments of tax, and generally also on additional taxes due upon adjustment by the taxing authority.


Individual income tax

Forty-three states impose a tax on the income of individuals, sometimes referred to as personal income tax. State income tax rates vary widely from state to state. The states imposing an income tax on individuals tax all taxable income (as defined in the state) of residents. Such residents are allowed a credit for taxes paid to other states. Most states tax income of nonresidents earned within the state. Such income includes wages for services within the state as well as income from a business with operations in the state. Where income is from multiple sources, formulary apportionment may be required for nonresidents. Generally, wages are apportioned based on the ratio days worked in the state to total days worked. All states that impose an individual income tax allow most business deductions. However, many states impose different limits on certain deductions, especially
depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

depreciation
of business assets. Most of the states allow non-business deductions in a manner similar to federal rules. Few allow a deduction for state income taxes, though some states allow a deduction for local income taxes. Six of the states allow a full or partial deduction for federal income tax. In addition, some states allow cities and/or counties to impose income taxes. For example, most
Ohio Ohio () is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper in Co ...

Ohio
cities and towns impose an income tax on individuals and corporations. By contrast, in
New York New York most commonly refers to: * New York City, the most populous city in the United States, located in the state of New York * New York (state), a state in the northeastern United States New York may also refer to: Film and television * New ...
, only
New York City New York, often called New York City to distinguish it from New York State New York is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of ...

New York City
and
Yonkers Yonkers () is a city in Westchester County, New York Westchester County is located in the U.S. state of New York. It is the seventh most populated county in New York and the most populated north of New York City. According to the 2010 U.S. ...
impose a municipal income tax.


States with no individual income tax

Nine U.S. states do not level a broad-based individual income tax. Some of these do tax certain forms of personal income: # Alaska – no individual tax but has a state corporate income tax. Alaska has no state sales tax, but lets local governments collect their own sales taxes. Alaska has an annual Permanent Fund Dividend, derived from oil revenues, for all citizens living in Alaska after one calendar year, except for some convicted of criminal offenses. # Florida – no individual income tax but has a 5.5% corporate income tax. The state once had a tax on "intangible personal property" held on the first day of the year (stocks, bonds, mutual funds, money market funds, etc.), but it was abolished at the start of 2007. # Nevada – has no individual or corporate income tax. Nevada gets most of its revenue from sales taxes and the gambling and mining industries. # New Hampshire – has an Interest and Dividends Tax of 5% (scheduled to phase out from 2023 through 2026), and a Business Profits Tax of 8.5%. New Hampshire has no sales tax. # South Dakota – no individual income tax but has a state franchise income tax on financial institutions. # Tennessee's " Hall income tax", originally 5%, was phased out as of 2022. In 1932, the
Tennessee Supreme Court The Tennessee Supreme Court is the state supreme court, ultimate judicial tribunal of the U.S. state, state of Tennessee. Roger A. Page is the Chief Justice. Unlike other states, in which the state attorney general is directly elected or appoint ...

Tennessee Supreme Court
struck down a broad-based individual income tax that had passed the General Assembly, in the case of ''Evans v. McCabe''. However, a number of Attorneys General have recently opined that, if properly worded, a state income tax would be found constitutional by today's court, due to a 1971 constitutional amendment. # Texas – no individual income tax, but imposes a
franchise taxA franchise tax is a government levy (tax) charged by some US states In the United States, a state is a Federated state, constituent Polity, political entity, of which there are currently 50. Bound together in a political union, each state hold ...
on corporations. In May 2007, the legislature modified the franchise tax by enacting a modified gross margin tax on certain businesses (sole proprietorships and some partnerships were automatically exempt; corporations with receipts below a certain level were also exempt as were corporations whose tax liability was also below a specified amount), which was amended in 2009 to increase the exemption level. The
Texas Constitution The Constitution of the State of Texas is the document that establishes the structure and function of the government of the U.S. state of Texas Texas (, ) is a state in the South Central United States, South Central region of the United ...
bans the passage of an income tax, having the effect of requiring a 2/3 majority of the legislature to repeal the ban. # Washington – no individual tax but has a business and occupation tax (B&O) on gross receipts, applied to "almost all businesses located or doing business in Washington." It varies from 0.138% to 1.9% depending on the type of industry. In July 2017, the
Seattle City Council The Seattle City Council is the legislative body of the city of Seattle, Washington (state), Washington. The Council consists of nine members serving four-year terms, seven of which are elected by electoral districts and two of which are elected ...
unanimously approved an income tax on Seattle residents, making the city the only one in the state with an income tax. It was subsequently ruled unconstitutional by the
King County Superior CourtThe Superior Court of Washington for King County (more commonly, the King County Superior Court) is the largest trial court in Washington (state), Washington state. It is based at the King County Courthouse, 516 Third Avenue, in downtown Seattle, Was ...
. The
Court of Appeals An appellate court, commonly called an ''appeals court'', ''court of appeals'' (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the Engl ...
upheld that ruling and the
Washington Supreme Court The Washington Supreme Court is the highest court in the judiciary of the U.S. state of Washington (state), Washington. The court is composed of a chief justice and eight justices. Members of the court are elected to six-year terms. Justices mu ...
declined to hear the case, maintaining the tax as unconstitutional and unenforceable. Washington plans to begin taxing individuals in 2022 through the Long-Term Care Trust Act. Stakeholders advocating for adoption of this act include assisted living, adult family home, and nursing home providers; labor unions; area agencies on aging; businesses; the
AARP AARP (formerly called the American Association of Retired Persons) is a United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country in . It consists of 50 , a , f ...
, and more. # Wyoming has no individual or corporate income taxes.


States with flat rate individual income tax

The following eight states have a flat rate individual income tax as of 2016: *Colorado – 4.63% (2019) *Illinois – 4.95% (July 2017) *Indiana – 3.23% Counties may impose an additional income tax). See
Taxation in Indiana Taxes in Indiana are almost entirely authorized at the state level, although the revenue is used to fund both local and state level government. The U.S. state, state of Indiana's income comes from four primary tax areas. Most state level income is ...
*Massachusetts – 5.1% (2016) (most types of income) *Michigan – 4.25% (2016) (22 cities in Michigan may levy an income tax, with non-residents paying half the rate of residents) *North Carolina – 5.75% (2016); 5.499% (2017) *Pennsylvania – 3.07% (many municipalities in Pennsylvania assess a tax on wages: most are 1%, but can be as high as 3.9004% in Philadelphia) *Utah – 5.0% (2016)


States with local income taxes in addition to state-level income tax

The following states have local income taxes. These are generally imposed at a
flat rate A flat fee, also referred to as a flat rate or a linear rate refers to a pricing structure that charges a single fixed fee A fee is the price A price is the (usually not negative) quantity Quantity is a property that can exist as a ...
and tend to apply to a limited set of income items. Alabama: *Some counties, including Macon County, and municipalities, including
Birmingham Birmingham ( ) is a city A city is a large human settlement.Goodall, B. (1987) ''The Penguin Dictionary of Human Geography''. London: Penguin.Kuper, A. and Kuper, J., eds (1996) ''The Social Science Encyclopedia''. 2nd edition. London: Ro ...
(employees on payroll only) California: *
San Francisco San Francisco (; Spanish Spanish may refer to: * Items from or related to Spain: **Spaniards, a nation and ethnic group indigenous to Spain **Spanish language **Spanish cuisine Other places * Spanish, Ontario, Canada * Spanish River (dis ...

San Francisco
(payroll only) Colorado: *Some municipalities, including
Denver Denver () is a consolidated city and county, the capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more forma ...

Denver
and
Aurora An aurora (plural: auroras or aurorae), sometimes referred to as polar lights (aurora polaris), northern lights (aurora borealis), or southern lights (aurora australis), is a natural light display in the Earth's sky, predominantly seen in high- ...
(flat-fee Occupational Privilege tax for privilege of working or conducting business; filed with municipality imposing fee) Delaware: *
Wilmington Wilmington may refer to: Places Australia *Wilmington, South Australia, a town and locality **District Council of Wilmington, a former local government area **Wilmington railway line, a former railway line United Kingdom *Wilmington, Devon *Wil ...
(earned, certain Schedule E income, as well as capital gains from sale of property used in business; income must be reported to the City of Wilmington if Wilmington tax is not withheld by employer; residents must file the Earned Income tax form to report wages on which Wilmington income tax is not withheld and the Net Profits tax form to report self-employment and most Schedule E income, as well as capital gains from sale of property used in business) Indiana (all local taxes reported on state income tax form): *All counties Iowa (all local taxes reported on state income tax form): *Many school districts and Appanoose County Kansas: *Some counties and municipalities (interest and dividend income; reported on separate state form 200 filed with the county clerk) Kentucky: *Most counties, including
Kenton County, Kentucky Kenton County is a county A county is a geographical region of a country used for administrative or other purposesChambers Dictionary The ''Chambers Dictionary'' (''TCD'') was first published by William Chambers (publisher), William and ...
, and municipalities, including
Louisville Louisville (, , ) is the largest city A city is a large human settlement In geography, statistics and archaeology, a settlement, locality or populated place is a community in which people live. The complexity of a settlement can ra ...
and Lexington (earned income and certain rental income that qualifies as a business; reported as Occupational License fee/tax by employer or as Net Profits tax by business, filed with county or municipality imposing tax) Maryland (all local taxes reported on state income tax form): *All counties, and the independent city of
Baltimore Baltimore ( , locally: ) is the most populous city The United Nations uses three definitions for what constitutes a city, as not all cities in all jurisdictions are classified using the same criteria. Cities may be defined as the city prop ...

Baltimore
Michigan: *Many cities, including
Detroit (strait A strait is a naturally formed, narrowing, typically navigable waterway that connects two larger bodies of water. The surface water generally flows at the same elevation on both sides and through the strait in either direction. Mo ...

Detroit
,
Lansing Lansing () is the capital of the U.S. state of Michigan. It is mostly in Ingham County, Michigan, Ingham County, although portions of the city extend west into Eaton County, Michigan, Eaton County and north into Clinton County, Michigan, Clinton ...
, and
Flint Flint is a sedimentary Sedimentary rocks are types of rock (geology), rock that are formed by the accumulation or deposition of mineral or organic matter, organic particles at Earth#Surface, Earth's surface, followed by cementation (geology ...
(most income above a certain annual threshold; reported on form issued by imposing city or on separate state form 5118/5119/5120 in the case of Detroit) Missouri (all other cities are prohibited from imposing local income tax): *
Kansas City The Kansas City metropolitan area is a bi-state metropolitan area A metropolitan area or metro is a region consisting of a densely populated urban core Urban means "related to a city". In that sense, the term may refer to: * Urban area ...
(earned income; income must be reported to the Kansas City if Kansas City tax is not withheld by employer; residents must file the Earnings tax form to report wages on which Kansas City income tax is not withheld and the Business Earnings tax form to report self-employment income) *
St. Louis St. Louis () is the second-largest city in Missouri Missouri is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State ( ...

St. Louis
(earned income; income must be reported to the City of St. Louis if St. Louis tax is not withheld by employer; residents must file the Earnings tax form to report wages on which St. Louis income tax is not withheld and the Business Earnings tax form to report self-employment income) New Jersey: *
Newark
Newark
(payroll only) New York (all local taxes reported on state income tax form): *
New York City New York, often called New York City to distinguish it from New York State New York is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of ...

New York City
(employees with NYC section 1127 withholding should also file New York City Form 1127) *
Yonkers Yonkers () is a city in Westchester County, New York Westchester County is located in the U.S. state of New York. It is the seventh most populated county in New York and the most populated north of New York City. According to the 2010 U.S. ...
* Metropolitan Commuter Transportation District (self-employed with income sourced from New York City, as well as the counties of Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester) Ohio: *Some school districts (either traditional or earned income tax base; reported on separate state form SD-100). *RITA (Regional Income Tax Agency). https://www.ritaohio.com/Municipalities *Most
cities A city is a large human settlement In geography, statistics and archaeology, a settlement, locality or populated place is a community in which people live. The complexity of a settlement can range from a small number of dwellings grouped to ...
and
villages A village is a clustered human settlement or Residential community, community, larger than a hamlet (place), hamlet but smaller than a town (although the word is often used to describe both hamlets and smaller towns), with a population typ ...
(more than 600 out of ) on earned income and rental income. Some municipalities require all residents over a certain age to file, while others require residents to file only if municipal income tax is not withheld by employer. Income is reported on a tax form issued by the municipal income tax collector, currently
Cleveland Cleveland ( ), officially the City of Cleveland, is a city in the U.S. The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country primarily located in North America North ...

Cleveland
's Central Collection Agency (CCA) or the Regional Income Tax Authority (RITA), or a collecting municipality. Municipalities such as Columbus and Cincinnati sometimes also collect for neighboring towns and villages. Oregon: *
Portland
Portland
(all residents must file an Arts Tax form with the city to either pay the flat-fee tax or qualify for an exemption based on low individual or household income) *
Lane Transit District The Lane Transit District (LTD) is a public agency that provides public transportation Shanghai Metro is the second largest rapid transit system in the world by route length, after the Beijing Subway. Public transport (also known as pub ...
(self-employed with income sourced from Lane Transit District, which includes parts of Lane County; reported on separate state tax form LTD) * Tri-County Metropolitan Transportation District (self-employed with income sourced from TriMet, which includes parts of Clackamas, Multnomah, and
Washington Washington commonly refers to: * Washington (state), United States * Washington, D.C., the capital of the United States ** Federal government of the United States (metonym) ** Washington metropolitan area, the metropolitan area centered on Washingt ...
counties; reported on separate state tax form TM) *Other transit districts (businesses with income sourced from those transit districts; filed with transit districts or municipalities administering transit districts) Pennsylvania: *Most municipalities, including
Pittsburgh Pittsburgh ( ) is a city in the Commonwealth (U.S. state), Commonwealth of Pennsylvania in the United States and the county seat of Allegheny County, Pennsylvania, Allegheny County. A population of 302,971 residents lives within the city limit ...

Pittsburgh
and
AllentownAllentown may refer to several places in the United States and topics related to them: *Allentown, California Toadtown (formerly, Allentown) is an unincorporated area, unincorporated community in Butte County, California, Butte County, California. ...
, and school districts (earned income only; local return must be filed by all residents of municipality or school district imposing local earned income tax with the local earned income tax collector, such as Berkheimer, Keystone Collections, or Jordan Tax Service; an additional local services tax, potentially refundable if income is below a certain threshold, is also imposed by some municipalities and school districts on earned income sourced from those municipalities and school districts; local earned income tax collectors, rates, and local service tax refund rules can be found on th
Pennsylvania Municipal Statistics
website) *
Philadelphia Philadelphia (colloquially known simply as Philly) is the largest city in the Commonwealth A commonwealth is a traditional English term for a political community founded for the common good In philosophy Philosophy (from , ) is ...

Philadelphia
(earned and passive income; income must be reported to the City of Philadelphia if Philadelphia tax is not withheld by employer; residents must file the Earnings tax form to report wages on which Philadelphia income tax is not withheld, the Net Profits tax form to report self-employment, business, and most rental income, and the School Income tax to report passive income excluding interest earned from checking and savings accounts; an additional Business Income and Receipts Tax is also imposed on business income sourced from Philadelphia; individuals earning less than amount that would qualify them for the Pennsylvania income tax forgiveness program are eligible to receive a partial refund of their wage tax withheld by filing a refund application) West Virginia: *Some municipalities, including
Charleston Charleston most commonly refers to: * Charleston, South Carolina Charleston is the largest city in the U.S. state of South Carolina, the county seat of Charleston County, South Carolina, Charleston County, and the principal city in the Charle ...
and Huntington (flat City Service fee for privilege of working or conducting business; filed with municipality imposing fee)


Corporate income tax

Most states impose a tax on income of corporations having sufficient connection ("nexus") with the state. Such taxes apply to U.S. and foreign corporations, and are not subject to
tax treaties Many countries have entered into tax treaties (also called double tax agreements, or DTAs) with other countries to avoid or mitigate double taxationDouble taxation is the levying of tax by two or more jurisdictions on the same income (in the case of ...
. Such tax is generally based on business income of the corporation apportioned to the state plus nonbusiness income only of resident corporations. Most state corporate income taxes are imposed at a flat rate and have a minimum amount of tax. Business taxable income in most states is defined, at least in part, by reference to federal taxable income. According to www.taxfoundation.org these states have no state corporate income tax as of Feb 1, 2020: Nevada, Ohio, South Dakota, Texas, Washington, and Wyoming. However, Nevada, Ohio, and Washington impose a gross receipts tax while Texas has a franchise tax based on "taxable margin", generally defined as sales less either cost of goods sold less compensation, with complete exemption (no tax owed) for less than $1MM in annual earnings and gradually increasing to a maximum tax of 1% based on net revenue, where net revenue can be calculated in the most advantageous of four different ways.


Nexus

States are not permitted to tax income of a corporation unless four tests are met under '' Complete Auto Transit, Inc. v. Brady'': :* There must be a "substantial nexus" (connection) between the taxpayer's activities and the state, :* The tax must not discriminate against interstate commerce, :* The tax must be fairly apportioned, and :* There must be a fair relationship to services provided. Substantial nexus (referred to generally as simply "nexus") is a general U.S. Constitutional requirement that is subject to interpretation, generally by the state's comptroller or tax office, and often in administrative "letter rulings". In '' Quill Corp. v. North Dakota'' the
Supreme Court of the United States The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States of America The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or Americ ...

Supreme Court of the United States
confirmed the holding of ''National Bellas Hess v. Illinois'' that a corporation or other tax entity must maintain a physical presence in the state (such as physical property, employees, officers) for the state to be able to require it to collect sales or use tax. The Supreme Court's physical presence requirement in ''Quill'' is likely limited to sales and use tax nexus, but the Court specifically stated that it was silent with respect to all other types of taxes ("Although we have not, in our review of other types of taxes, articulated the same physical-presence requirement that ''Bellas Hess'' established for sales and use taxes, that silence does not imply repudiation of the ''Bellas Hess'' rule."). Whether ''Quill'' applies to corporate income and similar taxes is a point of contention between states and taxpayers. The "substantial nexus" requirement of ''Complete Auto'', supra, has been applied to corporate income tax by numerous state supreme courts.


Apportionment

The courts have held that the requirement for fair apportionment may be met by apportioning between jurisdictions all business income of a corporation based on a formula using the particular corporation's details. Many states use a three factor formula, averaging the ratios of property, payroll, and sales within the state to that overall. Some states weight the formula. Some states use a single factor formula based on sales.


History

The first State Income Tax, as the term is understood today in the United States, was passed by the State of Wisconsin in 1911 and came into effect in 1912. However, the idea of taxing income has a long history. Some of the English colonies in North America taxed property (mostly farmland at that time) according to its assessed produce, rather than, as now, according to assessed resale value. Some of these colonies also taxed "faculties" of making income in ways other than farming, assessed by the same people who assessed property. These taxes taken together can be considered a sort of income tax. The records of no colony covered by Rabushka (the colonies that became part of the United States) separated the property and faculty components, and most records indicate amounts levied rather than collected, so much is unknown about the effectiveness of these taxes, up to and including whether the faculty part was actually collected at all. *
Plymouth Colony Plymouth Colony (sometimes Plimouth) was an British America, English colonial venture in America from 1620 to 1691 at a location that had previously been surveyed and named by Captain John Smith (explorer), John Smith. The settlement served as t ...
from 1643 and
Massachusetts Bay Colony The Massachusetts Bay Colony (1630–1691), more formally The Colony of Massachusetts Bay, was an English settlement on the east coast of America around the Massachusetts Bay Massachusetts Bay is a bay A bay is a recessed, coastal body ...
from 1646, and after they merged, the
Province of Massachusetts Bay The Province of Massachusetts Bay was a colony in British America British America comprised the colonial territories of the British Empire The British Empire was composed of the dominions, Crown colony, colonies, protectorates, L ...
until the Revolution; *
New Haven Colony The New Haven Colony was a small English colony in North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria ...
from 1649 and
Connecticut Colony The Connecticut Colony or Colony of Connecticut, originally known as the Connecticut River Colony or simply the River Colony, was an English colony in New England New England is a region comprising six states in the Northeastern United Stat ...
from 1650, past the 1662 merger with New Haven, until the Revolution; * the
Colony of Rhode Island and Providence Plantations The Colony of Rhode Island and Providence Plantations was one of the original Thirteen Colonies The Thirteen Colonies, also known as the Thirteen British Colonies or the Thirteen American Colonies, were a group of Kingdom of Great Britain, ...
, arguably from 1673 to 1744 or later; * the
Province of West Jersey West Jersey and East Jersey The Province of East Jersey, along with the Province of West Jersey, between 1674 and 1702 in accordance with the Quintipartite Deed were two distinct political divisions of the Province of New Jersey, which became ...
, a single 1684 law; * the "South-west part" of the
Province of Carolina Carolina was a province of Kingdom of England, England (1663–1707) and Kingdom of Great Britain, Great Britain (1707–1712) that existed in North America and the Caribbean from 1663 until partitioned into Province of North Carolina, North an ...
, later the
Province of South Carolina South Carolina, originally known as Clarendon Province, was a province A province is almost always an administrative division Administrative division, administrative unitArticle 3(1). , country subdivision, administrative region, subna ...
, from 1701 until the Revolution; * the
Province of New Hampshire The Province of New Hampshire was a colony of England and later a British province in North America. The name was first given in 1629 to the territory between the Merrimack River, Merrimack and Piscataqua River, Piscataqua rivers on the eastern c ...
, arguably from 1719 to 1772 or later; * and the
Delaware Colony Delaware Colony in the North American Middle Colonies consisted of land on the west bank of the Delaware River The Delaware River is a major river on the Atlantic Ocean, Atlantic coast of the United States. It drains an area of in four U.S. ...
in the
Province of Pennsylvania The Province of Pennsylvania, also known as the Pennsylvania Colony, was a British North American colony founded by William Penn William Penn (14 October 1644 – 30 July 1718) was an English writer and religious thinker belonging to the R ...
, from 1752 to the Revolution. Rabushka makes it clear that Massachusetts and Connecticut actually levied these taxes regularly, while for the other colonies such levies happened much less often; South Carolina levied no direct taxes from 1704 through 1713, for example. Becker, however, sees faculty taxes as routine parts of several colonies' finances, including Pennsylvania. During and after the
American Revolution The American Revolution was an ideological and political revolution which occurred in colonial North America between 1765 and 1783. The Americans in the Thirteen Colonies The Thirteen Colonies, also known as the Thirteen British Colo ...
, although property taxes were evolving toward the modern resale-value model, several states continued to collect faculty taxes. * Massachusetts until 1916 (when it was replaced by a quasi-modern classified individual income tax); * Connecticut until 1819; * South Carolina, where the tax edged closer to a modern income tax, until 1868; * Delaware until 1796; * Maryland from 1777 to 1780; * Virginia from 1777 to 1782; * New York, one 1778 levy; * the
Vermont Republic The Vermont Republic (French: ''République du Vermont''), officially known at the time as the State of Vermont (French: ''État du Vermont''), was an independent state in New England New England is a region comprising six states in the ...
, then Vermont as a state, from 1778 to 1850; * and Pennsylvania from 1782 to 1840 (when it was replaced by an individual income tax; Becker, as noted above, would date this tax earlier). Between the enactment of the Constitution and 1840, no new general taxes on income appeared. In 1796, Delaware abolished its faculty tax, and in 1819 Connecticut followed suit. On the other hand, in 1835, Pennsylvania instituted a tax on bank dividends, paid by withholding, which by about 1900 produced half its total revenue. Several states, mostly in the South, instituted taxes related to income in the 1840s; some of these claimed to tax total income, while others explicitly taxed only specific categories, these latter sometimes called classified income taxes. These taxes may have been spurred by the ideals of
Jacksonian democracy Jacksonian democracy was a 19th-century political philosophy in the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily locat ...
, or by fiscal difficulties resulting from the
Panic of 1837 The Panic of 1837 was a financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises we ...
. None of these taxes produced much revenue, partly because they were collected by local elected officials. A list: * Pennsylvania from 1840 to 1871; * Maryland from 1841 to 1850; * Alabama from 1843 to 1884; * Virginia from 1843 to 1926 (when it was replaced by a modern individual income tax); * Florida from 1845 to 1855; * and North Carolina from 1849 to 1921 (when it was replaced by a modern individual income tax). The 1850s brought another few income tax abolitions: Maryland and Vermont in 1850, and Florida in 1855. During the
American Civil War The American Civil War (also known by other names Other most often refers to: * Other (philosophy), a concept in psychology and philosophy Other or The Other may also refer to: Books * The Other (Tryon novel), ''The Other'' (Tryon nove ...
and
Reconstruction Era The Reconstruction era was a period in American history The history of the United States started with the arrival of Native Americans in North America around 15,000 BC. Native American cultures in the United States, Numerous indigenous ...
, when both the United States of America (1861-1871) and the Confederate States of America (1863-1865) instituted income taxes, so did several states. * Texas from 1863 to 1871; * Missouri from 1861 to 1865; * Georgia from 1863 to 1866; * West Virginia in 1863 only; * Louisiana from 1865 to 1899; * and Kentucky from 1867 to 1872. As with the national taxes, these were made in various ways to produce substantial revenue, for the first time in the history of American income taxation. On the other hand, as soon as the war ended, a wave of abolitions began: Missouri in 1865, Georgia in 1866, South Carolina in 1868, Pennsylvania and Texas in 1871, and Kentucky in 1872. The rest of the century balanced new taxes with abolitions: Delaware levied a tax on several classes of income in 1869, then abolished it in 1871; Tennessee instituted a tax on dividends and bond interest in 1883, but Kinsman reports that by 1903 it had produced zero actual revenue; Alabama abolished its income tax in 1884; South Carolina instituted a new one in 1897 (eventually abolished in 1918); and Louisiana abolished its income tax in 1899. Following the 1895 Supreme Court decision in Pollock v. Farmers' Loan & Trust Co. which effectively ended a federal income tax, some more states instituted their own along the lines established in the 19th century: * Oklahoma 1908 to 1915; * Mississippi 1912 to 1924; * Missouri, individual and corporate, from 1917. However, other states, some perhaps spurred by
Populism Populism refers to a range of political stances that emphasize the idea of "the people" and often juxtapose this group against "the elite". The term developed in the late 19th century in connection to the Populist Party and has been applied ...

Populism
, some certainly by
Progressivism Progressivism is a political philosophy Political philosophy or political theory is the philosophical Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, existence, knowledge ...
, instituted taxes incorporating various measures long used in Europe, but considerably less common in America, such as withholding, corporate income taxation (as against earlier taxes on corporate capital), and especially the defining feature of a "modern" income tax, central administration by bureaucrats rather than local elected officials. The twin revenue-raising successes of Wisconsin's 1911 (the Wisconsin Income Tax, the first "modern" State Income Tax was passed in 1911 and came into effect in 1912) and the United States' 1914 income taxes prompted imitation. Note that writers on the subject sometimes distinguish between corporate "net income" taxes, which are straightforward corporate income taxes, and corporate "franchise" taxes, which are taxes levied on corporations for doing business in a state, sometimes based on net income. Many states' constitutions were interpreted as barring direct income taxation, and franchise taxes were seen as legal ways to evade these bars. The term "franchise tax" has nothing to do with the voting franchise, and franchise taxes only apply to individuals insofar as they do business. Note that some states actually levy both corporate net income taxes and corporate franchise taxes based on net income. For the following list see and.National Industrial Conference Board, Inc. (1930). ''State Income Taxes. Volume I. Historical Development''. New York. * The
Territory of Hawaii The Territory of Hawaii or Hawaii Territory was an organized incorporated territory of the United States that existed from April 30, 1900 until August 21, 1959, when most of its territory, excluding Palmyra Island alt=Palmyra in the mi ...
, then Hawaii as a state, individual and corporate from 1901 (this is sometimes claimed as the oldest state income tax; it is certainly the oldest state corporate income tax); * Wisconsin, individual and corporate from 1911 (generally considered the first modern state income tax, built on a law largely written by Delos Kinsman, whose 1903 book on the subject is cited above; its major distinction as against older laws, including Hawaii's, is that state bureaucrats rather than local assessors collected it); * Connecticut, franchise, from 1915; * Oklahoma, modernisation of existing individual tax, from 1915; * Massachusetts, individual, from 1916; * Virginia, corporate, from 1916; * Delaware, individual, from 1917; * Montana, franchise, from 1917; * New York, franchise, from 1917; * Note abolition of South Carolina's non-modern individual income tax in 1918; * Alabama, individual, 1919, declared unconstitutional 1920; * New Mexico, individual and corporate, 1919, apparently abolished soon thereafter; * New York, individual, from 1919; * North Dakota, individual and corporate, from 1919; * Massachusetts, corporate (franchise), from 1919 or 1920; * Mississippi's income tax was held to apply to corporations in 1921; * North Carolina, modernisation of existing individual and institution of corporate taxes, from 1921; * South Carolina, individual and corporate, from 1921 or 1922; * New Hampshire, "intangibles" (restricted to interest and dividends), from 1923; * Oregon, individual and corporate, 1923 (repealed 1924); * Tennessee, corporate, from 1923; * Mississippi, modernisation of existing corporate and individual taxes, from 1924; * Virginia, modernisation of existing corporate and individual taxes, from 1926. This period coincided with the United States' acquisition of colonies, or dependencies: the Philippines, Puerto Rico, and Guam from Spain in the Spanish–American War, 1898–99; American Samoa by agreements with local leaders, 1899-1904; the Panama Canal Zone by agreement from Panama in 1904; and the U.S. Virgin Islands purchased from Denmark in 1917. (Arguably, Alaska, purchased from Russia in 1867, and Hawaii, annexed in 1900, were also dependencies, but both were by 1903 "incorporated" in the U.S., which these others never have been.) The Panama Canal Zone was essentially a company town, but the others all began levying income taxes under American rule. (Puerto Rico already had an income tax much like a faculty tax, which remained in effect for a short time after 1898.) * The Philippines and Puerto Rico, from 1913, by the same law that instituted the federal income tax; this law is ancestral to the modern independent Philippines' income tax as well; and * The U.S. Virgin Islands, from 1922. A third of the current state individual income taxes, and still more of the current state corporate income taxes, were instituted during the decade after the
Great Depression The Great Depression was a severe worldwide economic depression An economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a economic recession, recess ...
started: Penniman, Clara, and Walter W. Heller (1959). ''State Income Tax Administration''. Chicago: Public Administration Service. Chart pp. 7-8.Penniman, Clara (1980). ''State Income Taxation''. Baltimore and London: The Johns Hopkins University Press. . Chart pp. 2-3. * Arkansas, individual and corporate, from 1929; * California, franchise, from 1929; * Georgia, individual and corporate, from 1929; * Oregon, individual, franchise, and intangibles, from 1929, but the individual tax didn't take effect until 1930 and was restricted to use for property tax relief, and the intangibles tax was held unconstitutional in 1930; * Tennessee, intangibles, from 1929; * Idaho, individual and corporate, from 1931; * Ohio, intangibles, from 1931, apparently abolished soon thereafter; * Oklahoma, corporate, from 1931; * Oregon, intangibles, 1931 to 1939; * Utah, individual and franchise, from 1931; * Vermont, individual and corporate, from 1931; * Illinois, individual and corporate, 1932, soon declared unconstitutional; * Washington, individual and corporate, 1932, declared unconstitutional 1933;Washington State Research Council (1964). ''A State Income Tax: pro & con''. Pp. 6-7. * Alabama, individual and corporate, from 1933; * Arizona, individual and corporate, from 1933; * Kansas, individual and corporate, from 1933; * Minnesota, individual, corporate, and franchise, from 1933; * Montana, individual and corporate, from 1933; * New Mexico, individual and corporate, from 1933; * Iowa, individual and franchise, from 1934; * Louisiana, individual and corporate, from 1934; * California, individual and corporate, from 1935; * Pennsylvania, franchise, from 1935; * South Dakota, individual and corporate, 1935 to 1943; * The U.S. Virgin Islands income tax in 1935 became the first "mirror" tax, for which see below; * Washington, individual and corporate, 1935, held unconstitutional in separate decisions the same year; * West Virginia, individual, 1935 to 1942; * Kentucky, individual and corporate, from 1936; * Colorado, individual and corporate, from 1937; * Maryland, individual and corporate, from 1937; * District of Columbia, individual and either corporate or franchise, from 1939. A "mirror" tax is a tax in a U.S. dependency in which the dependency adopts wholesale the U.S. federal income tax code, revising it by substituting the dependency's name for "United States" everywhere, and vice versa. The effect is that residents pay the equivalent of the federal income tax to the dependency, rather than to the U.S. government. Although mirroring formally came to an end with the
Tax Reform Act of 1986 The Tax Reform Act of 1986 (TRA) was passed by the 99th United States Congress and signed into law by President Ronald Reagan on October 22, 1986. The Tax Reform Act of 1986 was the top domestic priority of President Reagan's second term. The ac ...
, it remains the law as seen by the U.S. for Guam and the Northern Mariana Islands because conditions to its termination have not yet been met. In any event, the other mirror tax dependencies (the U.S. Virgin Islands and American Samoa) are free to continue mirroring if, and as much as, they wish. The U.S. acquired one more dependency from Japan in World War II: the Trust Territory of the Pacific Islands. Two states, South Dakota and West Virginia, abolished Depression-era income taxes in 1942 and 1943, but these were nearly the last abolitions. For about twenty years after World War II, new state income taxes appeared at a somewhat slower pace, and most were corporate net income or corporate franchise taxes: * Rhode Island, corporate, from 1947; * The
Territory of Alaska The Territory of Alaska or Alaska Territory was an Organized incorporated territories of the United States, organized incorporated territory of the United States from August 24, 1912, until Alaska was granted statehood on January 3, 1959. The ter ...
, then Alaska as a state, individual and corporate, from 1949; * Guam, mirror, from 1950; * Pennsylvania, corporate, from 1951; * Oregon removed the restriction of individual income tax funds to property tax relief in 1953; * Delaware, corporate, from 1958; * New Jersey, corporate, from 1958; * Idaho, franchise, from 1959; * Utah, corporate, from 1959; * West Virginia, individual, from 1961; * American Samoa, mirror, from 1963; * Indiana, individual and corporate, from 1963; * Wisconsin, franchise, from 1965. As early as 1957
General Motors General Motors Company (GM) is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinat ...

General Motors
protested a proposed corporate income tax in
Michigan Michigan () is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper ...

Michigan
with threats of moving manufacturing out of the state. However, Michigan led off the most recent group of new income taxes: * Michigan, individual and corporate (this replacing a value-added tax), from 1967; * Nebraska, individual and corporate, from 1967; * Maryland, individual (added county withholding tax and non resident tax. Believes led to state being mainly a commuter state for work) 1967, Present * West Virginia, corporate, from 1967; * Connecticut, intangibles (but taxing capital gains and not interest), from 1969; * Illinois, individual and corporate, from 1969; * Maine, individual and corporate, from 1969; * New Hampshire, corporate, from 1970; * Florida, franchise, from 1971; * Ohio, individual and corporate, from 1971; * Pennsylvania, individual, from 1971; * Rhode Island, individual, from 1971; * The Trust Territory of the Pacific Islands, individual and corporate, from 1971. In the early 1970s, Pennsylvania and Ohio competed for businesses with Ohio wooing industries with a reduced corporate income tax but Pennsylvania warning that Ohio had higher municipal taxes that included taxes on inventories, machinery and equipment. A few more events of the 1970s: * Michigan abolished its corporate income tax in 1975, replacing it with another value-added tax; * New Jersey instituted an individual income tax in 1976; * The Northern Mariana Islands negotiated with the U.S. in 1975 a mirror tax which was to go into effect in 1979, but in 1979 enacted a law rebating that tax partially or entirely each year and levying a simpler income tax; * Alaska abolished its individual income tax retroactive to 1979 in 1980. (Also during this time the U.S. began returning the Panama Canal Zone to Panama in 1979, and self-government, eventually to lead to independence, began between 1979 and 1981 in all parts of the Trust Territory of the Pacific Islands except for the Northern Mariana Islands. The resulting countries - the Marshall Islands, the Federated States of Micronesia, and Palau - all levy income taxes today.) The only subsequent individual income tax instituted to date is Connecticut's, from 1991, replacing the earlier intangibles tax. The median family income in many of the state's suburbs was nearly twice that of families living in urban areas. Governor Lowell Weicker's administration imposed a personal income tax to address the inequities of the sales tax system, and implemented a program to modify state funding formulas so that urban communities received a larger share. Numerous states with income taxes have considered measures to abolish those taxes since the
Late-2000s recession The Great Recession was a period of marked general decline (recession In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (e ...
began, and several states without income taxes have considered measures to institute them, but only one such proposal has been enacted: Michigan replaced its more recent value-added tax with a new corporate income tax in 2009.


Rates by jurisdiction


Alabama

The corporate income tax rate is 6.5%.


Alaska

Alaska does not have an individual income tax.


Arizona


Personal income tax

Reference:


Corporate income tax

The corporate income tax rate is 4.9%.


Arkansas


California

California taxes all capital gains as income.


Personal income tax

California's listed tax brackets from 1%-12.3% are indexed for inflation and were most recently by 2012 California Proposition 30. There state has a 1% Mental Health Services surtax (Form 540, line 62) for incomes above $1 million that creates the maximum bracket of 13.3%. California also separately imposes a state Alternative Minimum Tax (Form 540, line 52) at a 7% rate, so a taxpayer may end up paying both the AMT and the 1% surtax. Reference:


Corporate income tax

The standard corporate rate is 8.84%, except for banks and other financial institutions, whose rate is 10.84%.


Colorado

Colorado has a flat rate of 4.55% for both individuals and corporations.


Connecticut


Personal income tax


Corporate income tax

Connecticut's corporate income tax rate is 7.5%.


Delaware


Personal income tax

Reference:


Corporate income tax

Delaware's corporate income tax rate is 8.7%.


State individual income tax rates and brackets


State corporate tax rates and brackets


See also

*
Income tax in the United States Income taxes in the United States are imposed by the federal government A federation (also known as a federal state) is a political entity A polity is an identifiable political entity—any group of people who have a collective identit ...
*State tax levels in the United States *Taxation in the United States *U.S. State Non-resident Withholding Tax *State sales tax, State Sales Tax *Jock tax


Notes


External links

{{sister project links, income tax
Federation of Tax Administrators: State Tax Agencies
Income taxes State taxation in the United States