State Corporation Income and Franchise Taxes

Forty-five states impose a direct tax on corporations, measured at least partially by net income. Michigan, Nevada, South Dakota, Washington, and Wyoming are the exceptions, though Michigan imposes a value-added tax (VAT) and Washington a gross receipts tax. The states impose flat or progressive rates ranging from 2.3% to approximately 10.75%. Nearly all states follow the federal law in defining net income, but many provide for varying exclusions and adjustments.

A state is empowered to tax any net corporate income attributable to in-state activity no matter where the corporation is headquartered. Corporations must apportion their income among the states where they have a sufficient connection (the legal term is nexus) and pay tax in each of those states. Several states tax unincorporated businesses separately.

Federal Corporation TaxesTaxesNumber of Individual Income Tax Returns Filed Electronically