State Tax Updates in 2021

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After 2020 brought about fewer tax changes due to shortened legislative sessions amid the COVID-19 pandemic, several states implemented significant updates to their tax codes this year. As highlighted in the Tax Foundation’s article, “State Tax Changes Effective January 1, 2021,” many of those changes were born out of laws that were adopted before 2020 but have January 2021 effective dates. Below are some figures tied to the notable corporate tax-related adjustments now in effect this year.

To see the Tax Foundation’s thorough breakdown of state tax changes in 2021, including a handful of retroactive changes prompted in 2020, visit www.taxfoundation.org/2021-state-tax-changes.

Arizona | Arizona reduced its economic nexus threshold for sales tax collection by out-of-state sellers to $100,000. Adopted in 2019, Arizona’s threshold was initially set at $200,000 and was then lowered to $150,000 for 2020. | Arkansas | In its third phase of a series of tax reforms, a process that began in 2019, Arkansas reduced its corporate tax rate from 6.5% to 6.2%. In addition, the state’s net operating loss carryforward period increased to 10 years, up from 8 years in 2020.| Connecticut | Connecticut began phasing out its franchise tax, reducing the rate from 3.1 mills to 2.6 mills per dollar of capital holdings. Further reductions are scheduled over the next couple of years, with a full repeal set for 2024. | Illinois | Illinois increased its franchise tax (or capital stock tax) de minimis exemption from $30 to $1,000. Although a modest change, this increase is the start of other scheduled de minimis exemption increases over the next couple of years.| Iowa | As part of a phased tax reform package adopted in 2018, Iowa’s deduction for federal corporate income taxes paid was repealed. With that change, the state reduced its top marginal corporate income tax rate from 12% to 9.8%. | Mississippi | Mississippi continued its franchise tax phaseout, reducing its rate to $1.75 per $1,000 of capital value, a drop from $2 per $1,000 of capital value last year. The state’s franchise tax rate is scheduled to decrease 25 cents each year until it’s fully repealed in 2028.

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