Report: Tax Burden Erodes Connecticut’s Competitiveness

Connecticut’s tax burden is the fourth highest in the U.S. according to a new study ranking state tax climates and economic competitiveness.

The Tax Foundation’s 2025 State Tax Competitiveness Index, released Oct. 21, evaluates state tax structures, including measuring their impact on economic growth.

Connecticut’s tax climate ranked 47th in the report, ahead of only California, New Jersey, and New York.

The report ranked each state’s individual income tax rates, corporate taxes, sales taxes, property tax burden, and unemployment taxes.

“Tax structure does play a role in a state’s economic successes or failures, and often a substantial one,” the report notes.

“Every state can benefit from a simple, neutral, transparent, pro-growth tax structure.”

Tax Structure

The report cited Connecticut’s property taxes as the highest in the country, while the income tax burden ranked fourth highest.

Connecticut unemployment taxes—paid exclusively by employers—ranked 11th highest among the states, with corporate taxes at 31st and sales taxes 21st.

“Connecticut has one of the most complex and least neutral individual income tax systems in the nation, featuring seven tax brackets with a top marginal rate of 6.99%,” the report notes.

“Additionally, tax brackets and the personal exemption are not adjusted for inflation.”

“Connecticut has one of the most complex and least neutral individual income tax systems in the nation.”

2025 State Tax Competitiveness Index

While Connecticut’s baseline 7.5% corporate income tax rate is lower than other New England states, the state also imposes a 10% corporate tax surcharge—originally implemented as a temporary measure and extended last year through 2026.

“Connecticut does, however, offer appropriate treatment of net operating loss carryforwards and forgoes a harmful throwback rule,” the report notes.

The report calls the Connecticut’s 6.35% sales tax rate “competitive both nationally and regionally,” although the property tax burden makes the state “less attractive to homeowners.”

Connecticut is also the only state that imposes a gift tax, which leaves small businesses organized as sole proprietorships, S corporations, and LLCs at a significant competitive disadvantage.

Regional, National Rankings

New Hampshire—which does not tax salaries and wages and has no sales tax—ranked sixth overall, the best of the New England states.

Maine’s tax climate ranked 29th, followed by Rhode Island (39th), Massachusetts (41st), Vermont (43rd), and Connecticut.

With no individual income taxes and no corporate taxes, Wyoming—which relies heavily on severance and pipeline property taxes—has the lowest tax burden of all states.

“States with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth.”

2025 State Tax Competitiveness Index

South Dakota ranked second on the tax competitiveness index, followed by Alaska, Florida, and Montana.

New York’s highest-in-the-nation income tax rates and high property taxes drove its ranking, with New Jersey, California, Connecticut, and Maryland filling out the bottom five spots.

“The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth,” the report notes.