2026 State Tax Policy Boot Camp | Part 2: Corporate Income Taxes
•February 18, 2026
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Why It Matters
Corporate income tax design influences state revenue, business location choices, and the distribution of tax burdens across shareholders, workers, and consumers, making it a critical lever for fiscal competitiveness and economic equity.
Key Takeaways
- •Corporate income tax contributes roughly 5% of state revenue.
- •Rates vary widely, from 2% in NC to over 18% NYC.
- •Economic incidence spreads among shareholders, workers, and consumers.
- •State conformity to federal code creates complexity and compliance challenges.
- •Net operating loss carry‑forward rules differ, affecting cyclical businesses.
Summary
The Tax Foundation’s State Tax Policy Boot Camp video explains that corporate income taxes, while historically modest, now generate about five percent of state revenues and roughly two percent of overall general funds. Rates differ dramatically across the nation, ranging from North Carolina’s 2% rate—currently slated for phase‑out—to New Jersey’s 12% and New York City’s local surcharge exceeding 18%, while a handful of states impose no corporate tax at all, substituting gross‑receipts levies or none whatsoever. Key insights include the distinction between legal and economic incidence: although corporations write the checks, the burden is shared among shareholders, workers, and consumers, with recent literature suggesting a sizable share falls on consumers. States largely mirror the federal corporate tax code through rolling or static conformity, yet each adds modifications—deductions, depreciation rules, and incentive credits—that create compliance complexity for multistate firms. Net operating loss carry‑forwards also vary, with some states limiting years or utilization, potentially hampering cyclical businesses. Illustrative examples underscore the diversity: North Carolina’s 2% rate, New Jersey’s 12%, and New York City’s 18% local tax illustrate the upper bound of corporate tax pressure. Meanwhile, Texas, Washington, and Ohio replace corporate income taxes with gross‑receipts taxes, and Wyoming and South Dakota maintain no major business tax. The video notes that C‑corporations, though a small share of firms, employ about half the nation’s workforce, highlighting their outsized economic relevance. For policymakers, understanding who ultimately bears the tax—shareholders, employees, or consumers—is crucial when debating rate adjustments or incentive structures. Divergent conformity approaches and NOL rules affect business location decisions, investment incentives, and state competitiveness, making corporate income tax design a pivotal lever in state fiscal strategy.
Original Description
Welcome to the second session of the Tax Foundation's State Tax Policy Bootcamp 2026. In this episode, Jared Walczak, Senior Fellow at the Tax Foundation, provides a comprehensive overview of corporate income taxes—how they work, who really pays them, and why they matter for state competitiveness.
Learn how corporate income taxes are imposed, how states determine what multistate business activity is taxable, and the economic considerations lawmakers need to understand. From nexus rules and apportionment formulas to the impact of federal tax reform, this session covers the essential concepts for anyone working in state tax policy.
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📋 TIMESTAMPS
0:00 – Introduction to corporate income taxes
1:00 – Corporate tax rates across states: 2% to 11.5%
2:00 – States without corporate income tax (Texas, Washington, Ohio, Wyoming, South Dakota)
3:00 – C corporations vs. pass-through businesses explained
4:00 – Economic incidence: Who really pays? (shareholders, workers, consumers)
5:00 – State vs. federal corporate tax incidence differences
6:00 – Nexus: Physical presence and economic nexus rules
10:00 – Apportionment: How states divide multistate income
12:00 – Single sales factor vs. three-factor apportionment
15:00 – Market-based sourcing vs. cost of performance
18:00 – Determining the corporate tax base
20:00 – Federal conformity: Rolling vs. static conformity
25:00 – GILTI and international income taxation
28:00 – Section 163(j) interest expense limitations
30:00 – R&D amortization and the Section 174 deduction
34:00 – Throwback rules and "nowhere income"
36:00 – Tax Cuts and Jobs Act impact on state revenues
38:00 – Rationale for corporate income taxes
40:00 – Economic impact: Employment and wage elasticities
42:00 – Conclusion and resources
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📚 KEY TOPICS COVERED
• Corporate income tax fundamentals and rate comparisons by state
• C corporations vs. pass-through entities (S corps, LLCs, partnerships)
• Legal incidence vs. economic incidence of corporate taxes
• Physical presence nexus and economic nexus (post-Wayfair implications)
• Public Law 86-272 and its limitations on state taxation
• Apportionment formulas: Single sales factor vs. three-factor weighting
• Market-based sourcing vs. cost of performance for service income
• Federal conformity approaches: Rolling, static, and selective conformity
• GILTI (Global Intangible Low-Taxed Income) and state responses
• Section 163(j) interest expense limitations
• R&D expense amortization under Section 174
• Throwback and throwout rules for "nowhere income"
• Tax Cuts and Jobs Act and state corporate revenue impacts
• Economic literature on corporate tax harm to employment and wages
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🔗 RESOURCES & FURTHER READING
Who Bears the Burden of Corporation Taxation? A Review of Recent Evidence
States Don’t Need to Penalize Research & Development to Preserve Corporate Income Tax Revenue
State Tax Implications of the One Big Beautiful Bill Act https://taxfoundation.org/research/all/state/big-beautiful-bill-state-tax-impact/
State Throwback and Throwout Rules: A Primer
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👤 ABOUT THE PRESENTER
Jared Walczak is a Senior Fellow at the Tax Foundation, where he conducts research on state tax policy and helps policymakers understand the implications of tax decisions on economic competitiveness and revenue.
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🏛️ ABOUT TAX FOUNDATION
The Tax Foundation is the nation's leading independent tax policy nonprofit. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels.
Subscribe for more tax policy education and analysis.
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