Texas ranks lowest for pass-through business tax rates

Texas finished in a tie for 45th in a Tax Foundation analysis of tax rates levied on pass-through businesses.

Pass-through businesses are defined as sole proprietorships, partnerships or other firms whose owners are allowed to “pass” the businesses’ income through the individual income tax system. Such companies represent more than 50 percent of states’ private-sector workers, according to the Tax Foundation.

Texas’s marginal tax rate for its pass-through businesses is 32.7 percent.

These rates represented the combined state and federal burden on pass-through companies, according to the analysis. Most of the amount these businesses pay is set by the federal government’s rules, but they also pay state taxes on individual income, which are highest in California and lowest in those states that don’t levy taxes on individual incomes.

The states without individual income taxes are Alaska, Florida, South Dakota, Texas, Washington and Wyoming.

Marginal Tax Rates for Pass-Through Businesses

Rank State Marginal Tax Rates for Pass-Through Businesses
1 California 46.1%
2 Hawaii 43.7%
3 New Jersey 43.5%
4 New York 43.4%
5 Oregon 42.7%
6 (tie) Maryland 41.5%
6 (tie) Vermont 41.5%
8 Minnesota 40.6%
9 Wisconsin 40.4%
10 Maine 39.9%
11 Connecticut 39.7%
12 (tie) Arkansas 39.6%
12 (tie) Montana 39.6%
12 (tie) Nebraska 39.6%
15 Delaware 39.4%
16 Ohio 39.3%
17 (tie) Illinois 39.2%
17 (tie) Kentucky 39.2%
17 (tie) West Virginia 39.2%
20 Rhode Island 38.7%
21 (tie) Georgia 38.5%
21 (tie) Virginia 38.5%
23 Kansas 38.4%
24 (tie) Idaho 38.3%
24 (tie) Missouri 38.3%
26 Iowa 38.1%
27 North Carolina 38.0%
28 Massachusetts 37.8%
29 (tie) Mississippi 37.7%
29 (tie) New Hampshire 37.7%
29 (tie) Oklahoma 37.7%
29 (tie) Utah 37.7%
33 New Mexico 37.6%
34 (tie) Arizona 37.3%
34 (tie) Michigan 37.3%
34 (tie) Pennsylvania 37.3%
37 Indiana 37.2%
38 Louisiana 36.5%
39 Colorado 36.4%
40 Alabama 36.0%
41 South Carolina 35.7%
42 North Dakota 35.0%
43 Tennessee 34.7%
44 Nevada 34.2%
45 (tie) Alaska 32.7%
45 (tie) Florida 32.7%
45 (tie) South Dakota 32.7%
45 (tie) Texas 32.7%
45 (tie) Washington 32.7%
45 (tie) Wyoming 32.7%

Source: Tax Foundation

This article was first published by The Center Square.

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