Corporations operating in New Jersey face the nation's highest combined federal and state corporate income tax rate at 30.1 percent, according to a new analysis published by the Tax Foundation in 2026. The report examines how the federal 21 percent corporate income tax combines with state-level levies across all 50 states and the District of Columbia. Overall, the analysis finds that businesses in the United States face an average combined tax burden of 25.5 percent on corporate income.
State corporate income tax rates vary widely, with top marginal rates spanning from 2.0 percent in North Carolina to 11.5 percent in New Jersey among the 44 states plus DC that impose such taxes. Thirteen states use graduated rate structures, while 31 states and DC apply flat rates to corporate income. Four states—Nevada, Ohio, Texas, and Washington—don't levy traditional corporate income taxes but instead impose gross receipts taxes on businesses. Three states (Delaware, Oregon, and Tennessee) collect both a corporate income tax and a separate gross receipts levy, while Pennsylvania, Virginia, and West Virginia apply gross receipts taxes at the local level only. South Dakota and Wyoming stand alone as the only two states imposing neither a corporate income tax nor a gross receipts tax, meaning corporations there face only the 21 percent federal rate. In Alaska, Illinois, Maine, and Minnesota, businesses confront combined rates at or above 28 percent.
The effective tax rates differ from simple addition because corporations can deduct state corporate income tax payments against their federal taxable income, which lowers the actual federal burden. The report explains that a corporation paying Rhode Island's 7 percent flat rate can deduct that amount from its federal liability, cutting the federal rate from 21 percent to 19.53 percent for a total combined rate of 26.53 percent. Two states go further by allowing businesses to deduct federal taxes against state liability: Alabama permits full deductibility of federal corporate income tax, while Missouri allows a 50 percent deduction. These provisions reduce the effective corporate tax rates that companies in those states actually pay.
The authors write that "corporate taxes are one of the most economically damaging ways to raise revenue and are a promising area of reform for states to increase competitiveness and promote economic growth, benefiting both companies and workers." The report stresses that when evaluating tax burdens on businesses, it's essential to look at both federal and state corporate taxes together rather than in isolation. The wide variation in combined rates—from 21 percent in six states with no corporate income tax to over 30 percent in New Jersey—creates significant differences in the tax climate businesses face depending on where they locate. States that impose high corporate tax rates may find themselves at a competitive disadvantage when companies decide where to expand or establish new operations.
The report positions corporate tax reform as a policy opportunity for states looking to boost their economic competitiveness. By lowering corporate income tax rates or restructuring how they're applied, states can make themselves more attractive to businesses while potentially spurring broader economic growth. The analysis suggests this isn't just about helping corporations—workers benefit too when companies have more resources to invest and expand. Six states have already chosen to forgo state-level corporate income taxes entirely, relying instead on other revenue sources or gross receipts taxes, demonstrating that alternative approaches exist for states willing to rethink their tax structures.