Iowa leads the nation – when it comes to taxing businesses. That’s according to a study completed by the Tax Foundation, which examined business taxes across the country.
Iowa is one of 44 states in the U.S. that have corporate tax rates. Iowa's rate – 12 percent – is the highest. New Jersey comes in second at 11.5 percent. The lowest in the country, by comparison, is levied in North Carolina, where the corporate tax rate is set at 2.5 percent.
Mike Ralston, president of the Iowa Association of Business and Industry, said the rate looks higher on paper than it actually is in practice.
He said that businesses could, up until very recently, deduct 50 percent of their federal taxes from their state tax burden. But at first glance, he said, the rate does look very high, which meant many businesses could be hesitant to locate within the state. That changed in recent years, when the state legislature reformed the tax structure. The corporate tax rate is set to drop to 9.8 percent by 2021, provided certain economic and budgetary markers are met.
Ralston said recent developments, however, put that reform in jeopardy.
“Iowa is an agricultural state. It is also a heavy manufacturing state,” Ralston said. “Trade and tariffs are having a negative impact. I would not look for those triggers to be met.”
He said he is not trying to say the current trade fight with China is necessarily bad policy – but when Iowa began crafting tax reform, these were not economic issues the state lawmakers could anticipate. He said the higher tax rate – and its write-offs – will likely stay in place for the short-term future.
“Anecdotally, we hear all the time from businesses that look at Iowa, that choose Iowa: Iowa is a great place to do business. But, anecdotally, I hear all the time that it does have an impact,” he said.
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