One noticeable trend in state income tax over the past couple of years is that many states have reduced corporate income tax rates. During 2022, the trend of corporate rate reductions continued, with the following states enacting reductions to state corporate income tax rates.
Arkansas: Senate Bill 1 reduces the highest corporate income tax rate from 5.9% to 5.3% for 2023 and later tax years. This bill was signed into law on Aug. 11, 2022.
Colorado: For tax years beginning on or after Jan. 1, 2022, the Colorado corporate and personal income tax rate is reduced from 4.55% to 4.4%. The measure, Proposition 121, was approved by voters on Nov. 8, 2022.
Idaho: Two changes to the state’s corporate income tax rate occurred during 2022. First, House Bill 436, signed Feb. 4, 2022, reduces the state’s corporate income tax rate from 6.5% to 6% for tax years beginning on or after Jan. 1, 2022. Second, House Bill 1, signed Sept. 1, 2022, further reduces the state corporate income tax rate to 5.8% beginning with the 2023 tax year.
Iowa: Two changes during 2022 reduced rates for corporations. First, House File 2317, signed into law on March 1, 2022, provides for a contingent reduction in the Iowa corporate income tax rate beginning in 2023. The rate reduction contingency is that at least $700 million of corporate income tax revenue must be collected in the previous fiscal year. The state must report by Nov. 1 of each year if the contingency has been met and announce the applicable tax rate for the next tax year. On Sept. 27, 2022, the Iowa Department of Revenue certified the tax rates applicable to years beginning on or after Jan. 1, 2023. The corporate tax brackets are as follows: $0 to $100,000 is taxed at 5.5%, and income exceeding $100,000 is taxed at 8.4%.
Second, Senate File 2367, signed on June 17, 2022, provides for a phased-in reduction to the state’s bank franchise tax rate. The rate is reduced from 5% to 4.7% for 2023, 4.4% for 2024, 4.1% for 2025, 3.8% for 2026, and 3.5% for 2027.
To make up for reduced tax revenues from corporations, many states have increased reliance on other sources of tax revenue such as sales tax.
Nebraska: Legislative Bill 873, signed on April 13, 2022, extends Nebraska’s phase-in of lower corporate income tax rates. The previous tax rate, enacted in 2021, was a reduction to 7.25% for 2023. The rate now will be reduced further to 6.5% for the 2024 tax year, 6.24% for 2025, 6% for 2026, and 5.84% for 2027.
New Hampshire: House Bill 1221, signed on June 17, 2022, provides for a further decrease in New Hampshire’s corporate income tax rate to 7.5% for tax years ending on or after Dec. 31, 2023. The enacted rate was 7.7% for 2021 and 7.6% for 2022.
Pennsylvania: House Bill 1342, among other things, implements a corporate income tax rate reduction from 9.99% to 8.99% for the 2023 tax year. The bill further provides for the phase-in rate reduction of 0.5% each year through the 2031 tax year. In 2031, the state’s corporate income tax rate will be 4.99%, which is half of the rate applicable to 2022. This bill was signed July 8, 2022.
Utah: Senate Bill 59, signed on Feb. 11, 2022, reduces the Utah corporate income tax rate from 4.95% to 4.85% for tax years beginning on or after Jan. 1, 2022.
Indiana pass-through entity tax enacted
Making noncash charitable contributions count