Connecticut’s tax system can use some work, according to the Tax Foundation’s 2025 State Tax Competitive Index.
“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 percent and a recapture provision that eliminates the benefit of lower brackets, effectively taxing all income at the taxpayer’s highest marginal rate,” the report states. “Additionally, tax brackets and the personal exemption are not adjusted for inflation.”
The Tax Foundation is a think tank that analyzes tax policies and makes recommendations to increase economic growth. It published its 2025 State Tax Competitive Index today.
The index covered more than just individual income tax.
Connecticut’s baseline corporate income tax rate is 7.5%. While this is not the highest rate in New England, is still burdensome, according to the report. The 10% surtax on businesses that make $100 million or more in gross proceeds can also stress companies. The state also has a minimum tax on a corporation’s capital stock, although that provision is set to phase out by 2028.
And while Connecticut’s sales tax, which is 6.35%, is competitive with some other states nationally and in the Northeast, there is room for improvement.
“The base includes some business inputs and excludes many final consumption goods and services, which limits the revenue-generating potential and reduces the neutrality of the sales tax system,” the report states.
The Tax Foundation also notes the state does not comply with the federal bonus depreciation treatment. Bonus depreciation is a tax incentive that allows companies to accelerate the depreciation of certain assets, including equipment.
The Tax Foundation claims Connecticut has “one of the highest property tax burdens in the nation” and “imposes harmful estate and gift taxes, making the state less attractive to homeowners and high-net-worth individuals.”
In its indexes, the Tax Foundation has consistently ranked Connecticut in the bottom 10 states. Last year, Connecticut was also ranked 47.
Last year and this year, New York was ranked the lowest on the tax index, followed by New Jersey. California and the District of Columbia were tied for 48th place.
At the top of the list, in both the 2024 and 2025 indexes, are Wyoming, South Dakota, Alaska and Florida.
But it’s not all bad news for Connecticut: The index says it is the 21st-best state for sales tax. Connecticut also does a good job with handing net operating loss carryforwards and avoids harmful throwback rules.
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