To What Extent Does Your State Rely on Corporate Income Taxes?

Corporate income taxes are one of the smallest sources of state and local tax revenue. On average, only 3.7 percent of state and local tax revenues came from corporate income taxes in fiscal year 2014 (the most recent data available).

Some, however, mistake the corporate income tax as the entirety of a business’s tax burden. In reality, businesses pay many types of taxes (such as sales tax, property tax, excise taxes, and more) and the corporate income tax makes up only 9.5 percent of total business taxes.

The share of revenue from corporate income taxes will decline as more businesses organize as pass-throughs (S-corps, partnerships, sole proprietorships, etc.), which “pass their income through” to their individual tax returns and therefore are liable under the individual income tax code. Additionally, corporate income tax revenue will decline as more businesses receive special tax credits and incentives, eroding the tax base.