As the great American writer Mark Twain said, “You can’t escape death and taxes.” So just accept the fact that you will have to pay taxes and file annual tax returns as a given. Nothing personal…

In the United States, there are three levels of taxation: federal taxes, state taxes, and local taxes, including sales taxes (which are state-related). Taxes are levied independently of each other and on the entire taxable amount. The amount of federal taxes is not deducted from profits or state taxes.

Corporate profits are taxed on net income (revenue minus all expenses and deductions).

There are no turnover or income taxes in the United States. There has never been a VAT (Value Added Tax) in the U.S.

Federal Taxes

Since 2018, for all companies of all forms of ownership, regardless of the size of net income, the federal tax rate is 21% (on net income).

Simplifying and reducing federal taxes is one of the achievements of President Trump’s administration. Previously (before 2018), taxes were significantly higher, with many different rates depending on the amount of income, reaching up to 38%.

State Taxes in the U.S.

In the United States, business regulation is left to the states. This means that each state has its own laws regulating businesses, its own systems for registering and re-registering businesses, its own tax rates, its own penalties, and even its own lawyers who must pass special exams on the laws of those states.

In some states, there are no taxes (specifically, the tax rates are zero). In some states, the rates are uniform regardless of the amount of taxable net income. In other states, there are tax brackets where taxes depend on the amount of net income. To simplify the understanding of corporate net income taxation in different states, we have compiled all the states into one simple table.

Corporate Income Tax Rates in Different States:

(A) The states of Nevada, Ohio, Texas, and Washington do not have a corporate income tax but do have a gross receipts tax with rates not comparable to corporate income tax rates. Delaware has gross receipts taxes in addition to corporate income taxes, as do some states like Pennsylvania, Virginia, and West Virginia, which allow gross receipts taxes at the local (but not state) level.

(B) On January 1, 2026, the income tax rate in Georgia will return to 6%. In 2019, the state tax rate may decrease to 5.5% pending legislative approval. 

(C) The Illinois rate includes two separate income taxes, one at a rate of 7% and one at a rate of 2.5%. 

(D) As of July 1, 2019, the rate in the state of Indiana will change to 5.5%. By 2022, the tax rate in Indiana is expected to decrease to 4.9%. 

(E) The Iowa rate is set to decrease to 9.8 percent by 2021 depending on revenue availability.

(F) Mississippi continues to gradually phase out the 3% bracket by increasing exemptions by $1,000 per year. By early 2022, the 3% rate will be completely eliminated. 

(G) A planned reform in 2020 will result in almost all companies in Missouri being assigned a single sales tax, allowing the rate to decrease from 6.25% to 4%.

(H) In New Jersey, the specified rates apply to all net income of the corporation, not just income above a threshold. A temporary surcharge is in effect, resulting in a rate of 11.5 percent for businesses with income over $1 million. 

Note. In addition to regular income taxes, many states impose other taxes on corporations, such as gross receipts and franchise taxes. Some states also establish alternative minimum taxes and special rates for financial institutions.

Sales taxes in individual states and local taxes.

In the U.S., sales taxes vary from state to state. But it’s important to first explain some nuances of sales taxation: — wholesale sales are exempt from these taxes. — when selling goods out of state, sales taxes are not collected.— in several states, some goods are exempt from these taxes. However, this varies from state to state.— sales taxes are collected only for retail sales to customers within the state. Until 2017, when selling online out of state (to another U.S. state), these taxes were not collected. This significantly impacted state economies. In 2017, the Supreme Court and courts in several states made several important decisions on this issue. Now, if a company sells to a customer in another state, it is required to charge the customer the tax of that state and send the money to the budget of the state where the final customer is located (according to the address where the goods are shipped). 

Note. In reality, all these taxes are practically invisible to the seller. For example, if you decide to sell a product to a customer in New York from California for $100, the system through which you receive payments from the customer will automatically add the state tax percentage, charge the customer, and send the due sales tax to that state. You will receive exactly $100 for the product sold for $100.  Each state is made up of counties. Each county has the right to impose local sales taxes. To prevent counties from being too greedy and imposing irrationally high taxes, in most states, the total of local taxes and state taxes is legally capped. 

(A) City, county, and municipal rates vary. These rates depend on the population size used to calculate the average local tax rate.

(B) In three states, mandatory statewide local sales taxes are imposed: California (1%), Utah (1.25%), and Virginia (1%). These are included in the state sales tax in this table.

(C) Sales taxes in Hawaii, New Mexico, and South Dakota have a broad base that includes many business services.

(D) Special taxes in local resort areas are not accounted for here.
(E) Salem County, New Jersey, is not subject to state sales tax and imposes a local rate of 3.3125%.

Note: Washington D.C. rankings do not affect state rankings, but the numbers in parentheses indicate where it would rank if included.