(The Center Square) – Iowa lawmakers made several changes to the state’s tax code, which improved its ranking on The Tax Foundation’s annual State Business Tax Climate report.
The state ranked 33rd, up from 38th in 2022.
The Iowa Legislature passed a bill that reduced the state income tax from 8.53 percent to six percent and the corporate income tax from 9.8 percent to 8.4 percent. The state is working toward a 3.6 percent flat income tax rate in 2026 and a 5.5 percent flat tax rate for corporations.
“These reforms signify a concerted effort by Iowa lawmakers to provide tax relief to residents and enhance the overall competitiveness of the tax system,” the Tax Foundation said in its report. “Iowa’s recent comprehensive tax reforms will continue phasing in over time, further improving the state’s rankings as Iowa moves toward a flat individual income tax rate of 3.9 percent in 2026 and a flat corporate income tax with a target rate of 5.5 percent, subject to tax triggers.”
The Tax Foundation grades states based on five different criteria. Individual income taxes account for 29.8 percent of the ranking, sales tax for 23.3 percent, corporate tax for 20.9 percent, property tax for 11.1 percent and unemployment insurance tax for 11.1 percent.
Wyoming took the top spot in the ranking, with Alaska, Florida and Montana rounding out the top five. The five states with the worst business tax climates are New Jersey, New York, California, Connecticut and Massachusetts.