Analysis: North Carolina's corporate tax rate lowest in the country

The report notes that while North Carolina has the lowest corporate tax rate, South Dakota and Wyoming don’t have a corporate income tax at all, and North Carolina is on track to join them by 2030.

“In addition to the federal corporate income tax rate, many U.S. states levy corporate income taxes of their own," the Tax Foundation says. "Economists have long understood that corporate income taxes are double taxes, since the same income is taxed once as profit, and once as individual income when distributed as dividends to shareholders.

“Contrary to popular misconception, the ultimate burden of corporate income taxes doesn’t fall on corporations, but is instead borne by workers, shareholders and consumers. According to a recent Federal Reserve study, state corporate taxes hurt entrepreneurship.”

The Tax Foundation identified 44 states that levy a corporate income tax, which ranged from North Carolina’s 2.5% rate to 11.5% in New Jersey. Behind the Garden State is Minnesota at 9.8%, Illinois at 9.5%, and Alaska and Pennsylvania, which levy top corporate tax rates of 9.4% and 8.99%, respectively.

There are 11 states with top rates at or below 5%. North Carolina is followed by Missouri and Oklahoma at 4%, North Dakota at 4.31%, Colorado at 4.55%, Utah at 4.85%, Arizona and Indiana at 4.9%, and Kentucky, Mississippi, and South Carolina at 5%.

“This is the result of a decade-long commitment to tax reform by conservative legislators in North Carolina," said Brian Balfour, senior vice president of research at the conservative think tank John Locke Foundation in Raleigh. "The research shows higher corporate taxes are associated with lower worker wages, so lower corporate taxes are good news for workers, who bear most of the burden of such levies. Moreover, the state corporate tax has been found to be the most damaging to state economic growth, so a lower corporate tax rate means more jobs and investment.”

Nevada, Ohio, Texas, and Washington use a gross receipts tax instead of corporate income taxes, while Delaware, Oregon, and Tennessee impose both gross receipts taxes and corporate income taxes.

“Though often thought of as a major tax type, corporate income taxes accounted for an average of just 7.07% of state tax collections and 4.04% of state general revenue in fiscal year 2021,” according to the report. “And while these figures are not high, they represent a substantial increase over prior years. Corporate income taxes accounted for 2.26% of general revenue in FY 2020, which is more in line with historical norms.”