(The Center Square) – Tennessee is ranked eighth in the Tax Foundation’s 2025 State Tax Competitiveness and is unlikely to move up in the rankings until it removes two business taxes, the organization said.
The ranking, formerly known as the State Business Tax Climate, also notes the state’s high sales tax rate, which is the second highest in the country.
The Volunteer State is one of 15 that has a capital stock tax, placing it at 48th in the corporate tax rankings, according to the report released Thursday.
“Tennessee slashed its gross receipts tax rate from 0.3 to 0.15% and made reforms to its state capital stock (franchise) tax to reduce burdens on businesses,” the report said. “Until these taxes are eliminated, however, Tennessee is unlikely to improve on its ranking of 8th overall.”
Tennessee ranks first among states in individual income tax, which it doesn’t have. However, its 7% state sales tax is only second to California’s 7.25% rate. Its combined state and local sales tax rate is 9.55%, which places it 47th among the states.
“Because income taxes have a greater impact on economic growth than sales taxes, however, Tennessee’s decision to rely on high sales taxes in lieu of income taxes is an economically advantageous one,” the report said.
Tennessee ranked 33rd for property taxes and 17th for its unemployment insurance tax.
The report analyzes 150 variables of the major taxes: corporate, individual income, sales and excise, property and wealth taxes and unemployment insurance taxes. Individual income taxes are weighed the heaviest at 30.5%, followed by sales and excise taxes (22.8%), corporate taxes (21.3%), property and wealth taxes (14.9%), and unemployment insurance taxes (10.5%).
The states with the top tax competitiveness scores are Wyoming, South Dakota, Alaska, Florida and Montana. Maryland, Connecticut, California, New Jersey and New York have the lowest scores.
The bottom 10 states share “complex, nonneutral taxes with comparatively high rates,” the report said.
“New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the highest-rate corporate income tax in the country, and has one of the highest-rate individual income taxes. Additionally, the state has a particularly aggressive treatment of international income, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes,” the report said.
