Report: Illinois’ high corporate tax rate compounded by other high taxes

[February 09, 2022]  By Scot Bertram

(The Center Square) – A new report shows the corporate tax rate in Illinois is among the highest in the country.

New analysis from the Tax Foundation, an independent tax policy nonprofit, looks at how the states stack up for 2022. Illinois’ combined corporate rate is 9.5%, which includes the base of 7% and an additional 2.5% tax known as a personal property replacement tax.

“It’s the fifth-highest corporate income tax rate in the country,” said Katherine Loughead, senior policy analyst with the Center for State Tax Policy at the Tax Foundation. “Illinois is looking at really high corporate income taxes, which impacts business investment in the state.”

She explained that many economists generally believe that corporate income taxes are the most harmful state or local tax in terms of reducing gross state product growth over time.

“It's important to keep in mind that the corporate income tax isn't the only high tax that businesses are paying in Illinois,” Loughead said. “They also pay the state’s high property taxes, high sales taxes. Those things pile up to make Illinois one of the least friendly states for businesses in terms of high tax burdens across the board.”

Neighboring states Missouri, Indiana, and Kentucky all have corporate tax rates of 5% or less. Wisconsin checks in at 7.9% while Iowa’s rate is slightly higher at 9.9%.

“In order to reverse the outmigration trend and really attract new employers and new jobs, Illinois is going to have to really reexamine its tax landscape in order to better compete with these other states that are really trying to make their own states more competitive,” Loughead said.

Illinois has seen eight years in a row of continued population decline. The state was one of three states to lose population in the most recent U.S. Census.

Last year, 16 states either enacted or implemented individual or corporate income tax rate reductions, the highest number in quite some time.

“States are really looking for ways to become more competitive and reducing business tax burdens is one of the best ways to do that,” Loughead said. “The trend the past couple years has definitely been to decrease income tax rates.”

New Jersey and Pennsylvania have the highest corporate tax rates in the country at 11.5% and 9.9%, respectively. South Dakota and Wyoming levy neither a corporate tax nor a gross receipts tax.