With a combined federal, state, and local marginal top tax rate of 46.6 percent on pass-through businesses, Colorado ranks 32nd in the country, according to a new Tax Foundation study.
That’s important to small business owners, since many small businesses are structured so that business income “passes through” to the owners and is taxed at their personal income rate.
Since these businesses account for 90 percent of U.S companies and employ half the private sector work force, they are key players in the nation’s economy, the study says. But they’re often overlooked, as the nation’s tax debate tends to focus on corporate income tax.
“As the tax reform debate moves forward in 2017, it will be important for policymakers to consider the effects of tax reform proposals on pass-through businesses,” the study advises.
Here’s how Colorado’s 46.6 percent top marginal rate compares with its neighbors:
Nebraska: 47.9 percent
Oklahoma: 46.9 percent
Utah: 46.8 percent
New Mexico: 46.7 percent
Arizona: 46.5 percent
Wyoming: 42.6 percent
Kansas: 42.6 percent
California has the highest tax rate in the nation for sole proprietorships, at 51.8 percent.