Paul L. Caron

Monday, September 2, 2019

Marginal Tax Rates For Pass-through Businesses Vary By State: 32.7% In TX, FL; 46.1% In CA

Tax Foundation, Marginal Tax Rates for Pass-through Businesses Vary by State

Pass-through businesses—businesses like sole proprietorships, S corporations, and partnerships that “pass” their income “through” to their owner’s income tax returns and pay the ordinary individual income tax—make up a majority of U.S. businesses. Marginal tax rates vary for pass-throughs depending upon the state in which they operate because of differences in how states tax individual income.

Pass-through businesses’ marginal tax rates vary by state, from a low of 32.7 percent (in seven states) to a high of 46.1 percent (in California). These rates include both state and federal taxes.

Tax Foundation

See also Libin Zhang (Roberts & Holland, New York), Marginal Income Tax Rates of the Passthrough Business Deduction, 159 Tax Notes 1139 (May 21, 2018).

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Let me get my handy dandy calculator out. 46.1% - 34.2% is roughly 12%. So if I move my online business from California to Nevada, I save 12% in state income taxes. Cool beans.

Posted by: Dale Spradling | Sep 3, 2019 5:37:17 AM

That's a lot, but many businesses in these places are very successful.

It would be interesting to see statistics on how the effective tax rates actually collected from the larger ones compare to these nominal rates. And whether their owners think they are getting a fair deal, pay grudgingly and move on, or are realistically being deterred from expansions.

Posted by: Anand Desai | Sep 2, 2019 5:49:48 AM

NY and Cal have high tax rates, high inequality, and people sleeping in the streets. Not quite the model the country should follow.

Posted by: Mike Livingston | Sep 2, 2019 3:33:29 AM