Alaska’s Tax Climate, Ranked

The Tax Foundation recently released the 2020 State Business Tax Climate Index, which ranks every state according to the burden of various taxes on their economies. Alaska’s overall score was third in the nation, largely due to having no individual income tax and no state-level sales tax. However, the Index shows room to improve Alaska’s corporate tax rate, property taxes, and unemployment insurance tax rate to be more competitive. The results of the Index underscore how critical the lack of an individual income tax is in attracting new businesses and generating economic growth.

The Index evaluates five taxes (individual income, sales, corporate income, property, and unemployment insurance) on a relative scale from 0.0 to 10.0, including 124 variables in total. Each factor is weighted based on the variability of the 50 states’ score from the mean; this means that the factors with the greatest variability between states—and therefore the most influence on business decisions—make up a larger proportion of the rank. The weights are reported in the table below, along with Alaska’s rank and score for each factor.


Tax Weight (percentage of the rank) Rank Score (out of 10)
Overall 100% 3 7.22
Corporate Tax Rate 19.7% 26 5.12
Individual Income Tax 30.2% 1 (absent) 10.00
Sales Tax 24.0% 5 (no state-level, local only) 8.08
Property Tax 16.6% 25 5.07
Unemployment Insurance Tax 9.5% 46 4.31


Alaska ranks third overall, behind Wyoming (first) and South Dakota (second). Our individual income tax ranks first with a perfect score, tying with several other states that also lack an individual income tax. Because this score comprises 30.2 percent of the overall index score, Alaska’s economic competitiveness is considerably enhanced by not levying an individual income tax. The most important lesson for policymakers from the Index report is not taxing individual income can boost a state’s economy dramatically; conversely, taxing individual income can significantly harm a state’s economy.

Alaska’s sales tax ranks fifth, which is due to the lack of a state-level tax and having relatively low local-level sales tax rates. According to the report, the weighted statewide average of local sales taxes is approximately 1.76 percent, which is the lowest average for local-level sales taxes alone. Though there is no statewide sales tax, there are still excise taxes on gasoline (14.43 cents per gallon), diesel, tobacco, and beer ($1.07 per gallon). Interestingly, Alaska’s gasoline excise tax rate is the lowest in the United States, whereas the beer tax rate is the second highest.

Though lacking an individual income tax goes a long way toward establishing a welcoming business climate in Alaska, the unemployment insurance (UI) tax ranks 46th, which drags down the overall score. In addition, this tax fell 11 places since the 2019 Index, illuminating a worrying decline in hospitability for businesses. Alaska’s UI tax structure holds high minimum and maximum rates and wage bases above the federal level. In addition, Alaska’s business’ experience rating formula, which affects how much a business pays in UI taxes, is calculated using the variation in an employer’s payroll between quarters—a method unique to Alaska—which violates tax neutrality by incorporating factors other than the number of employees. Lowering Alaska’s minimum unemployment insurance tax rate and reducing the complexity of the UI tax code would make Alaska more attractive for potential employers.

Property taxes account for 16.6 percent of the Index score, and Alaska’s rank of 25 in this category is decidedly mediocre—precisely in the middle of the pack. Small businesses are unequivocally harmed when property taxes are high, making them influential in a business’ decision to relocate.

The report states that Alaska’s maximum corporate income tax rate of 9.4 percent is relatively high, only lower than Iowa’s (12.0 percent), New Jersey’s (11.5 percent), Pennsylvania’s (9.99 percent), and Minnesota’s (9.8 percent). Alaska’s graduated corporate tax rate structure has 10 brackets, the highest number of any state; most states that levy a corporate income tax have one rate and one bracket. In addition, Alaska has not fully adopted the federal deduction schedule for depletion of natural resources, creating tax complexity, nor has Alaska indexed its corporate tax brackets for inflation, resulting in de facto tax increases. These factors contribute to Alaska’s unimpressive rank of 26 on corporate income taxes.

Lowering the rates and reducing the complexity of our corporate, property, and unemployment insurance taxes will incentivize businesses small and large to open in or relocate to Alaska, ultimately diversifying the economy and creating jobs for Alaskans of all ages. Third place is respectable, but Alaska could have a first-in-the-nation business tax climate. Making smart tax policy changes now will improve Alaska’s economy and spur growth that will benefit everyone for years to come.


The Tax Foundation is a nonprofit think tank located in Washington, DC, where its economists study federal, state, local, and international tax policy. The 2020 State Business Tax Climate Index is authored by Jared Walczak, the Tax Foundation’s Director of State Tax Policy.