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Kellie M. Smith, CPA, Senior Tax Manager
As is typical throughout the tax year, some states change their tax rates and their apportionment ratios and methods. Calendar and fiscal taxpayers alike are affected by the changes. And based on where your particular entity may be in its processes, you could be extending your returns, preparing or finalizing your returns, completing year end or quarterly tax provisions, or already into your quarterly estimates for 2019. The following is a summary of the majority of changes.
State corporate tax rate changes:
2018 state corporate tax rate changes
- The District of Columbia dropped its tax rate from 9% in 2017 to 8.25% for 2018 and beyond.
- Idaho dropped its tax rate from 7.4%, plus $10 in 2017 to 6.925%, plus $10 for 2018 and beyond.
- Indiana has been gradually lowering its rate. The tax rate changed from 6.0% for July 1, 2017 through June 30, 2018, to 5.75% for July 1, 2018 through June 30, 2019, to 5.5% for July 1, 2019 through June 30, 2020. It will continue to drop to 5.25% for the same period ending June 30, 2021, and to 4.9% for after June 30, 2021. Taxpayers need to use a days per period calculation for years that begin in one period and end in another.
- Kentucky changed its tax rate for 2018. Rather than the graduated income tax rate system it had, for 2018 and beyond, it is a straight 5% tax for all corporate taxpayers. The LLET has not changed.
- In September 2018, Maine significantly lowered its tax rates when it changed its graduated income tax system by increasing the amount of taxable income allowed at each of its lowest tax brackets. For tax years beginning in 2018, the new amounts are: $0-$350,000: 3.5%; $350,001-$1,050,000: $12,250 plus 7.93%; $1,050,001-$3,500,000: $67,760 plus 8.33%; $3,500,001 or more: $271,845 plus 8.93%
- Mississippi has begun to reduce its corporate tax burden by phasing out tax on the first $5,000 of taxable income gradually through the year 2022. For 2018, the first $1,000 of taxable income is taxed at 0%, while $1,000 - $5,000 is taxed at 3%. For 2019, the first $2,000 is taxed at 0%. At the same time, the franchise tax, which is based on the corporation's capital, is being phased out over the next 10 years. Each year the tax rate will drop by $0.25 per $1,000 until it is completely gone as of January 1, 2028.
- For 2018 and 2019, New Jersey added a 2.5% surtax on corporations with allocated taxable income over $1 million. This surtax will decrease to 1.5% for 2020 and 2021.
- New York's capital base tax rate has been decreasing. It drops to 0.075% (0.056% for qualified manufacturers) for tax years beginning in 2018 and to 0.05% (0.038% for qualified manufacturers) for 2019. For 2020, it drops to 0.025% (0.019% for qualified manufacturers) and is eliminated for tax years beginning in 2021 and after.
- Utah slightly decreased its tax rate from 5% in 2017 to 4.95% for 2018 and beyond.
2019 (and beyond) state corporate tax rate changes
- For 2019, Georgia has dropped its rate from 6% to 5.75%.
- For tax periods ending in 2019, New Hampshire has decreased its tax rate on taxable business profits from 8.2% to 7.9% for gross income over $50,000. The enterprise business value tax rate has also been decreased from 0.72% to 0.675%. Additionally, for tax periods ending in 2020 and 2021, the rates will drop to 7.7% and 0.6%, respectively, and then decrease further to 7.5% and 0.5%, respectively for periods ending in 2022 and beyond.
- New Jersey also is changing their minimum tax for each member of a combined return to $2,000 each for tax years ending on or after July 31, 2019.
- For tax years beginning in 2019, North Carolina has decreased the income tax rate from 3% to 2.5%.
- For 2020, Missouri's tax rate will decrease from 6.25% to 4%.
Pass-through state tax rate changes:
- Effective for tax years beginning on or after January 1, 2018, Connecticut has imposed a pass-through entity tax on S corporations at a rate of 6.99% of their taxable base.
- Idaho reduced its withholding tax rate from 7.4% for 2017 to 6.925% for 2018.
- North Carolina reduced its withholding tax rate from 5.499% for 2018 to 5.25% for 2019 and beyond.
State apportionment changes:
- North Carolina is on a single sales factor formula as of 2018.
- Delaware, Maryland, and Utah are phasing in single sales factor apportionment over the next few years. Refer to the specific state for exact dates and formulas for each year during the phase in period.
- For years beginning on or after January 1, 2020, Missouri will require the use of a single sales factor apportionment formula.
- Kentucky, Montana and Oregon switched to market-based sourcing for tax years after 2017.
- Colorado, Indiana and New Jersey have switched to market based sourcing for tax years after 2018.
- Missouri and New Mexico require market based sourcing for tax years after 2019.