A new analysis from the Tax Foundation highlights significant changes in state tax competitiveness over the past six years, highlighing several states making notable gains while others have slipped in the rankings.
The State Tax Competitiveness Index, updated annually since 2003, evaluates how well states structure their tax systems.
The foundation's latest report – released shortly after the IRS revealed the 2026 inflation adjustments to federal income tax brackets, among many other provisions – which incorporates a revised methodology applied retroactively to 2020, ranking states based on how they have adjusted their tax codes in response to shifting economic and policy landscapes.
According to the foundation's analysis published Monday, the most improved states in terms of tax competitiveness since 2020 were:
Tennessee: 38th in 2020, now 8th;
Iowa: 43rd in 2020, now 17th;
Georgia: 28th in 2020, now 18th;
Louisiana: 40th in 2020, now 31st; and
Arkansas: 41st in 2020, now 34th
Tennessee reduced its corporate gross receipts tax, improved business expensing, and fully phased out its tax on individual interest and dividends income, becoming one of only eight states without an individual income tax.
Iowa also climbed the rankings, buoyed by decisions to repeal its alternative minimum tax, reduce its top corporate income tax rate from 12% to 7.1%, and consolidate its individual income tax brackets. The top individual rate now stands at 3.8%, down from 8.53% in 2019. The Tax Foundation noted that Iowa’s reforms “converted a nine-bracket system to a flat tax.”
Other states notching gains include Georgia, which transitioned to a flat 5.19% individual income tax and aligned its corporate rate accordingly; Louisiana, which eliminated certain tax provisions, reduced its top individual income tax rate from 6% to 3%, and consolidated corporate brackets; and Arkansas, which lowered both corporate and individual income tax rates and simplified its bracket structure.
Meanwhile, the states that fell furthest in the Tax Foundation's index were:
Oregon: 8th in 2020, now 35th;
Washington: 33rd in 2020, now 45th;
Colorado: 22nd in 2020, now 33rd;
New Mexico: 20th in 2020, now 28th; and
Massachusetts: 36th in 2020, now 43rd
Oregon dropped after adopting a modified gross receipts tax alongside its corporate income tax. Meanwhile, Washington – previously among those without an income tax – fell after instituting a 9.9% tax on individual capital gains income over $1 million.
Colorado’s 11-point decline was less about new taxes and more about missed opportunities for reform. The state “did not address some of the inefficiencies in its tax code,” the Tax Foundation said, flagging issues like the throwback rule and the lack of a uniform sales tax base.
Bucking a trend of tax-bracket consolidation across the country, New Mexico added more individual income tax brackets and raised its top rate to 5.9%, while Massachusetts shifted from a flat to a progressive income tax thanks to a 2022 ballot measure and enacted a new payroll tax.
"A state’s ranking is not a permanent label – instead, it is meant to show states where they have done well and where they can still improve," the Tax Foundation said. "Every state can benefit from a simple, neutral, transparent, pro-growth tax structure."
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