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CORPORATIONS; TAXATION;

OLR Research Report


August 4, 2009

 

2009-R-0290

STATE CORPORATION TAX AND COMPANIES HEADQUARTERED IN CONNECTICUT

By: Judith Lohman, Chief Analyst

You asked for a comparison of the corporate income tax rate, revenue, and business tax burdens in Connecticut and other states. You also asked how many corporations are headquartered in Connecticut, especially in Fairfield County, and how this compares to other states.

SUMMARY

Connecticut is one of 44 states that have a corporate income tax and one of 30 states that tax all corporate income at a flat rate. Flat corporate income tax rates range from a low of 4.63% in Colorado to a high of 9.99% in Pennsylvania. The average state rate is 7.24%. Connecticut's 7.5% is slightly higher than the average and ranks 13th highest out of the 30 states.

Connecticut is not highly dependent on annual corporation tax revenue. In FY 08, the state derived only 4% of its total state revenue from the corporation tax, compared to an overage of 6.9% for all states with such taxes. Of the 44 states with a corporate income tax, only four receive a lower share of state revenue from the tax than Connecticut.

Finally, Connecticut ranked 49th out of 50 states in combined state and local business tax burden, according to an annual report by the Council on State Taxation (COST), an association of large corporations operating in many states. According to COST, taxes on business contribute 32.3% of all state and local tax revenue in Connecticut compared to an average of 47.1% for all 50 states.

Many large multistate and multinational corporations are headquartered in Connecticut. Of the companies listed in Fortune Magazine's list of the 1,000 largest companies, 26 have their corporate headquarters in the state. Of these, 14 are headquartered in Fairfield County. Connecticut ranks 12th in the number of Fortune 500 company headquarters with 11.

CONNECTICUT'S CORPORATION TAX

Connecticut's corporation tax applies only to companies that are organized as so-called “C” corporations and that do business in the state. It does not apply to other types of business entities, such as partnerships and limited partnerships, sole proprietorships, limited liability companies, limited liability partnerships, or S corporations.

Corporations must calculate tax liability in two ways. One method uses net income and the other the company's so-called “capital base” (outstanding stock, profits, and reserves). The net income calculation uses the company's federal taxable income as its staring point and therefore incorporates most federal income definitions, deductions, rules, and exclusions.

Companies that do business in other states as well as Connecticut pay taxes only on the share of their net income or capital base attributable to Connecticut. This share is determined by apportionment formulas specified in Connecticut law that compare a company's Connecticut activity with its overall operations. For most corporations, apportionment is based on three factors: sales, payroll, and property, with a double weight in the formula given to sales. For financial services companies, manufacturers, and broadcasters, apportionment is determined solely by sales, that is, their sales in Connecticut as a proportion of their national sales.

Connecticut's corporation tax is 7.5% of net income or 3.1 mills per dollar of capital base, whichever produces the larger tax, but no less than $250. A company can reduce the amount it has to pay by subtracting any corporation tax credits for which it may be eligible. But the reduction for credits is limited to 70% of its total liability and, in any event, every company must pay the minimum tax of $250.

STATE CORPORATION TAX RATES

Connecticut is one of 44 states that impose corporate income taxes. Of the remaining six states, five have no state corporation tax (Nevada, South Dakota, Texas, Washington, and Wyoming), while Ohio has a tax on business gross receipts called a business activity tax.

Of the states with corporate income taxes, 30, including Connecticut, impose a flat rate tax on all taxable income and 15 have graduated taxes, with tax rates increasing above various income levels. Table 1 shows state corporate income tax rates as of July 1, 2009. For states with more than one tax rate, we show the range of rates and income threshold for the highest rate.

TABLE 1: STATE CORPORATE INCOME TAX RATES

State

Tax Rate(s)

Income Threshold

for Highest Rate

State

Tax Rate(s)

Income Threshold

for Highest Rate

Alabama

6.5%

> $0

Minnesota

9.8%

> $0

Alaska

1%- 9.4%

> $90,000

Mississippi

3%-5%

> $10,000

Arizona

6.968%

> $0

Missouri

6.25%

> $0

Arkansas

1%- 6.5%

> $100,000

Montana

6.75%

> $0

California

8.84%

> $0

Nebraska

5.58%-7.81%

> $100,000

Colorado

4.63%

> $0

New Hampshire

8.5%

> $0

Connecticut

7.5%

> $0

New Jersey**

6.76%-9.36%

$100,000

Delaware

8.7%

> $0

New Mexico

4.8%-7.6%

> $ 1,000,000

Florida

5.5%

> $0

New York

7.1%

> $0

Georgia

6.0%

> $0

North Carolina

6.9%

> $0

Hawaii

4.4%-6.4%

> $100,000

North Dakota

2.6%-6.5%

>$30,000

Idaho

7.6%

> $0

Oklahoma

6%

> $0

Illinois

7.3%

> $0

Oregon***

6.6%-7.9%

>$250,000

Indiana

8.5%

> $0

Pennsylvania

9.99%

> $0

Iowa

6%-12%

> $250,000

Rhode Island

9%

> $0

Kansas

4%-7.05%

> $50,000

South Carolina

5%

> $0

Kentucky

4%-6%

> $100,000

Tennessee

6.5%

> $0

Louisiana

4%-8%

> $200,000

Utah

5%

> $0

Maine

3.5%-8.93%

> $250,000

Vermont

6%-8.5%

>$25,000

Maryland

8.25%

> $0

Virginia

6%

> $0

Massachusetts

9.5%

> $0

West Virginia

8.5%

> $0

Michigan *

4.95%

> $0

Wisconsin

7.9%

> $0

 

* Michigan has an additional surcharge equal to 21.99% of tax liability or $6 million, whichever is less.

** New Jersey's rates are not marginal rates but apply to all income that exceeds the threshold. Rates include a 4% surcharge expiring after tax year 2009.

***Oregon's top rate applies to the 2009, 2010, and 2011 tax years.

Source: The Tax Foundation, Facts & Figures: Mid-Year Update, July, 2009

STATE CORPORATION TAX REVENUE AND BUSINESS TAX BURDEN

Of the $587.4 billion in revenue states and localities collected from businesses in FY 08, corporate income taxes made up 9.6% or $56.6 billion. In most states, including Connecticut, businesses paid more in property, sales, and excise and gross receipts taxes than in corporate income taxes.

Corporation Tax Revenue as a Percentage of Total State Revenue

Connecticut does not rely as heavily as most other states on its corporation tax. Of the states with corporate income taxes, New Hampshire is by far the most dependent on it, with corporation tax revenue making up more than 27% of its total state revenue in FY 08. The following five most dependent are, in order: Alaska, West Virginia, Delaware, California, and Massachusetts. By contrast, only a relatively low percentage of Connecticut's total state revenue came from the corporation tax in FY 08 (4%). Other states in the same range as Connecticut are Arkansas and Maryland (both 4.5%) and Oklahoma (4.2%). Hawaii takes in the lowest share from corporation taxes followed by Vermont, Missouri, and South Carolina.

Table 2 shows each state's corporate income tax revenue for FY 08 and the percentage of each state's revenue it receives from the tax.

TABLE 2: CORPORATION TAX REVENUE AS A SHARE OF TOTAL STATE REVENUE

State

FY 08 Revenue (millions)

Share of Total State FY 08 Revenue

State

FY 08

Revenue (millions)

Share of Total State FY 08 Revenue

Alabama

$501

5.8%

Minnesota

$1,020

5.7%

Alaska

789

11.7%

Mississippi

501

5.8%

Arizona

785

5.7%

Missouri

459

3.5%

Arkansas

318

4.5%

Montana

160

6.6%

California

11,849

10.1%

Nebraska

233

5.6%

Colorado

508

5.3%

New Hampshire

317

27.3%

Connecticut

734

4.0%

New Jersey

3,133

9.2%

Delaware

179

10.5%

New Mexico

355

7.1%

Florida

2,217

6.2%

New York

6,018

7.7%

Georgia

942

5.2%

North Carolina

1,112

5.3%

Hawaii

85

2.0%

North Dakota

141

7.0%

Idaho

190

5.2%

Oklahoma

279

4.2%

Illinois

1,860

9.8%

Oregon

441

6.6%

Indiana

910

6.1%

Pennsylvania

2,418

6.8%

Iowa

484

5.0%

Rhode Island

151

5.3%

Kansas

432

7.4%

South Carolina

269

3.8%

Kentucky

435

5.3%

Tennessee

1,620

8.7%

Louisiana

940

6.4%

Utah

416

6.6%

Maine

185

5.0%

Vermont

75

3.3%

Maryland

552

4.4%

Virginia

808

7.6%

Massachusetts

1,512

10.0%

West Virginia

388

11.0%

Michigan

2,466

7.2%

Wisconsin

838

5.7%

Sources:

FY 08 Revenue: National Association of State Budget Officers, Fiscal Survey of the States: June 2009

Percentage of Total State Revenue: Federation of Tax Administrators, 2008 State Tax Collection by Source, revised June 25, 2009

Corporation Tax Share of State and Local Business Tax Burden

To assess the relative burden corporate income taxes place on each state's businesses, it is helpful to see the share of total tax revenue states and localities collect from taxes on business and the share of the total business tax revenue coming from the corporate income tax. This type of state-by-state information is available from the Council on State Taxation's annual report on state business tax burdens. COST is a nonprofit trade association of over 600 multistate corporations engaged in interstate and international business. Its annual report is prepared by the accounting firm Ernst & Young.

Among other things, COST's report includes figures showing amounts of state and local business taxes collected in the following categories: (1) property taxes, (2) sales taxes, (3) excise and gross receipts taxes, (4) corporate income taxes, (5) unemployment insurance taxes, (6) personal income taxes on business income, and (7) license and other taxes. The report also includes a calculation of the share each of these taxes contributes to the total state and local taxes businesses pay in each state. Table 3 shows COST's figures for each state. Unlike the other tables in this report, Table 3 compares state business tax burdens in all 50 states, even those without state corporation taxes.

COST's statistics indicate that Connecticut's overall business tax burden is lower than the burden in most other states, including states with no corporation taxes, such as Nevada, Texas, and South Dakota.

TABLE 3: BUSINESS TAX BURDEN, FY 2008

State

Business Share of

Total State and Local Revenue

Corporate Income Tax Share of Total Business Taxes

State

Business Share of

Total State and Local Revenue

Corporate Income Tax Share of Total Business Taxes

Alabama

45.5%

8.5%

Montana

52.5%

8.7%

Alaska

89.3%

15.9%

Nebraska

46.5%

6.7%

Arizona

49.9%

7.7%

Nevada

49.9%

0

Arkansas

38.9%

9.1%

New Hampshire

55.4%

22.0%

California

40.7%

13.7%

New Jersey

37.2%

14.3%

Colorado

44.2%

5.8%

New Mexico

56.1%

8.3%

Connecticut

32.3%

7.3%

New York

40.9%

19.4%

Delaware

52.8%

14.6%

North Carolina

36.2%

9.8%

Florida

48.5%

6.5%

North Dakota

65.3%

7.7%

Georgia

41.4%

6.8%

Ohio

42.2%

9.0%

Hawaii

38.1%

4.1%

Oklahoma

50.1%

5.8%

Idaho

39.4%

9.1%

Oregon

38.2%

10.3%

Illinois

46.0%

11.6%

Pennsylvania

41.1%

9.4%

Indiana

42.9%

8.2%

Rhode Island

45.8%

6.2%

Iowa

45.5%

6.5%

South Carolina

43.3%

5.3%

Kansas

47.5%

9.3%

South Dakota

61.7%

4.5%

Kentucky

41.6%

9.1%

Tennessee

50.6%

10.4%

Louisiana

59.4%

7.6%

Texas

61.2%

0

Maine

47.4%

6.1%

Utah

38.5%

10.9%

Maryland

30.7%

8.0%

Vermont

45.8%

6.7%

Massachusetts

37.9%

15.9%

Virginia

36.7%

10.1%

Michigan

42.5%

8.5%

Washington

51.3%

0

Minnesota

39.3%

10.6%

West Virginia

52.2%

15.9%

Mississippi

48.1%

8.7%

Wisconsin

39.4%

8.9%

Missouri

40.4%

4.9%

Wyoming

74.3%

0

Source: Council on State Taxation, Total State and Local Business Taxes, 50 State Estimates for Fiscal Year 2008, January, 2009.

CORPORATIONS HEADQUARTERED IN CONNECTICUT

Twenty-six Fortune 1000 companies are headquartered in Connecticut. Of these, 14 are headquartered in Fairfield County, seven in Hartford County, three in New Haven County, and one in Tolland County (see Table 4).

TABLE 4: FORTUNE 1000 COMPANIES HEADQUARTERED IN CONNECTICUT

Company Name

Headquarters City

County

Ceneovo, Inc.

Stamford

Fairfield

Crane Co.

Stamford

Fairfield

Frontier Communications, Corp.

Stamford

Fairfield

Pitney Bowles, Inc.

Stamford

Fairfield

Silgan Holdings, Inc.

Stamford

Fairfield

Emcor Group, Inc.

Norwalk

Fairfield

Ims Health, Inc.

Norwalk

Fairfield

Priceline.com, Inc.

Norwalk

Fairfield

Xerox Corp.

Norwalk

Fairfield

Interactive Brokers Group, Inc.

Greenwich

Fairfield

United Rentals, Inc.

Greenwich

Fairfield

Terex Corp

Westport

Fairfield

Praxair, Inc.

Danbury

Fairfield

Aetna Inc.

Hartford

Hartford

Hartford Financial Services Group

Hartford

Hartford

Phoenix Co., Inc.

Hartford

Hartford

United Technologies Corp.

Hartford

Hartford

Magellan Health Services, Inc.

Avon

Hartford

Northeast Utilities

Berlin

Hartford

Stanley Works

New Britain

Hartford

Amphenol Corp.

Wallingford

New Haven

Chemtura Corp.

Middlebury

New Haven

Hubbell, Inc.

Orange

New Haven

United Natural Food, Inc.

Killingly

Tolland

Source: Reference USA

Connecticut ranks 12th among states in the number of Fortune 500 company headquarters, with 11 (see Table 5).

TABLE 5: FORTUNE 500 COMPANY HEADQUARTERS BY STATE

2008

Rank

State

Fortune 500

Company

Headquarters

Rank

State

Fortune 500

Company

Headquarters

1

Texas

58

18

Nebraska

4

2

New York

55

Oklahoma

4

3

California

52

19

Kansas

3

4

Illinois

33

20

Idaho

2

5

Ohio

28

Louisiana

2

6

Pennsylvania

25

Nevada

2

7

New Jersey

23

Oregon

2

8

Michigan

22

Rhode Island

2

9

Minnesota

19

21

Alabama

1

Virginia

19

Delaware

1

10

Florida

14

Iowa

1

North Carolina

14

Maine

1

11

Georgia

12

South Carolina

1

Massachusetts

12

Utah

1

12

Connecticut

11

22

Alaska

0

13

Colorado

10

Hawaii

0

Washington

10

Mississippi

0

Wisconsin

10

Montana

0

14

Missouri

9

New Hampshire

0

15

Tennessee

8

New Mexico

0

16

Arizona

6

North Dakota

0

Maryland

6

South Dakota

0

17

Arkansas

5

Vermont

0

Kentucky

5

West Virginia

0

18

Indiana

4

Wyoming

0

Source: money.cnn.com/magazines/fortune

JL:ts