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Unlike the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S., the corporate income tax is intended as a tax on profits.

States with the lowest personal income tax rates

There are seven federal individual income tax brackets; the federal corporate income tax system is flat. This yielded a four-place improvement on the corporate component, from 19th to 15th, though the individual income tax rate reductions were not enough to secure an improvement in that component due to intense competition in other states. Policymakers should tread carefully when considering SALT limits on corporations. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.. This approach rewards states on particularly strong aspects of their tax systems (or penalizes them on particularly weak aspects), while measuring the general competitiveness of their overall tax systems. In New Hampshire, only interest income and tax dividends are taxed at a rate of 4%, but not personal income tax.

• Localities competing for business can put themselves at a greater competitive advantage by keeping personal property taxes low.
• The state’s top marginal individual income tax rate is 5.9% as of 2025.
• Furthermore, tax increases significantly retard economic growth when the revenue is used to fund transfer payments.
• The average house price in Arkansas was $209,250 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

Unemployment Insurance Taxes

Of the top ten destinations in the report, most but not all have comparatively low state taxes. Most have lower housing costs than the East Coast and West Coast states. Infrastructure refers to the physical structures and facilities necessary for a society to function, including transportation, energy, water, and communication systems. This category includes metrics such as road quality, electricity access, internet penetration, and airport capacity. Every year, the US Department of Labor publishes the “State UI Trust Fund Solvency Report,” ranking all the states based on their UI trust fund solvency level measured using the Average High Cost Multiple.50 The recommended solvency level is 1 or above. California and New York have the lowest solvency level at 0, which means that their UI trust funds are essentially insolvent.

• A handful of states—California, Hawaii, New Jersey, and New York—have established a temporary disability insurance (TDI) program that augments the UI program by extending benefits to those unable to work because of sickness or injury.
• Wasylenko’s rejoinder is that policymakers routinely overestimate the degree to which tax policy affects business location decisions and that as a result of this misperception, they respond readily to public pressure for jobs and economic growth by proposing lower taxes.
• Their tax systems hamper economic growth by including too many business inputs, excluding too many consumer goods and services, and imposing excessive rates of excise taxation.
• States with the highest effective rates and therefore the worst scores are Vermont (5.13 percent), Maine (5.09 percent), New Jersey (4.81 percent), New Hampshire (4.64 percent), New York (4.44 percent), and Connecticut (4.07 percent).
• The property taxes included tax on real, personal, and utility property owned by businesses.41 Since property taxes can be a large burden on businesses, they can have a significant effect on location decisions.
• However, Alaska localities are allowed to levy sales taxes and the weighted statewide average of these taxes is 1.82 percent.

Florida

But we wanted to expand and refresh the publication state income tax rates before it got stale, to stay ahead of new developments in tax. A refresh also gave us a chance to better systematize and rebalance the treatment of a few outlier state tax provisions that had to be shoehorned into the methodology of prior editions. The following TurboTax Online offers may be available for tax year 2024. Intuit reserves the right to modify or terminate any offer at any time for any reason in its sole discretion.

State Tax Competitiveness Index Ranks and Component Tax Ranks

However, state income tax rates tend to be lower than federal tax rates. Many range between 1% and 10%, and some states don’t tax anything on the first few thousand dollars of income. When a child attends a public school, it’s possible to think of this as “income” to the household. Very few people, understandably, have any interest in taxing the receipt of these government services, but it’s true that they are untaxed despite being income in some meaningful sense. Denying the C-SALT deduction would mean that these services functionally are taxed to the extent that they are funded by state corporate income tax receipts, but arbitrarily so, since there’s no real correspondence between the corporation and the state-funded services.

Types of taxes: A closer look at what you pay

The lowest tax bracket in California is 1%, which is one of the lowest in the nation. The next highest income tax rate is found in Hawaii, where the highest bracket has a rate of 11%. In the United States, each state has its own policy for collecting income taxes. Income taxes are just one of the ways that state governments make revenues for operations – think of things like building schools and repairing roads. 33 The average local option sales tax rate is calculated as an average of local statutory rates, weighted by population. See Jared Walczak, “State and Local Sales Tax Rates, Midyear 2024,” Tax Foundation, Jul. 9, 2024.

This category includes metrics such as historical landmarks, museums, and archaeological sites. Agriculture is the practice of cultivating crops and raising animals for food, fiber, and other products. This category includes metrics such as arable land, crop production, and livestock population, as well as factors like agricultural technology and policy. Health is the state of physical, mental, and social well-being, and not merely the absence of disease or infirmity.

Past Rankings and Scores

• It ranks, both overall and across five subindices—individual income taxes, corporate taxes, sales, use, and excise taxes, property and wealth taxes, and unemployment insurance taxes—how states compete, and where each has room to improve.
• A marriage penalty exists when a state’s standard deduction and tax brackets for married taxpayers filing jointly are not double those for single filers.
• This may be an understatement in some localities with much higher local add-ons, but by weighting each locality’s rate, the Index computes a statewide average of local rates that is comparable to the average in other states.
• We use implied tax rates for those states, which account for the nationwide composition of the different components of individual income.
• These are levied on employers when the state desires to recover benefit costs above and beyond the UI tax collections based on the normal experience rating process.

That’s right — residents only have to worry about property tax in the Granite State (although they do have some of the highest property tax rates in the country). Other than the states that do not levy an individual income tax, North Dakota has the lowest income tax rate in the nation. Finally, Louisiana also has a lower income tax rate of 1.85% to 4.25%.

• Arizona receives a perfect score for withholding, but its lack of a meaningful filing threshold yields a total score of 5.00.
• Their UI trust funds’ solvency is typically below the recommended level.
• Culture refers to the shared beliefs, values, customs, behaviors, and artifacts that characterize a group or society.
• It is true that taxes are but one factor in business decision-making.
• Inventory taxes are highly distortionary, because they force companies to make decisions about production that are not entirely based on economic principles but rather on how to pay the least amount of tax on goods produced.

He finds specifically that property taxes, because they are paid regardless of profit, have the strongest negative effect on business. Bartik’s econometric model also predicts tax elasticities of -0.1 to -0.5 that imply a 10 percent cut in tax rates will increase business activity by 1 to 5 percent. Bartik’s findings, as well as those of Mark, McGuire, and Papke (2000), and ample anecdotal evidence of the importance of property taxes, buttress the argument for inclusion of a property index devoted to property-type taxes in the Index. These state income tax rates apply to income earned in 2025, which is reported on tax returns filed in 2026.