The nonpartisan Tax Foundation released its 2026 State Tax Competitiveness Index on Thursday that once again ranked New Jersey’s tax climate as second-worst in the nation due to its high income taxes, corporate taxes, property taxes and unemployment insurance taxes.
Since 2014, New Jersey has consistently ranked either No. 49 or No. 50 in the annual study, formerly called the State Business Tax Climate Index. Last year, the foundation updated its methodology and rebranded the report as the State Tax Competitiveness Index to better reflect overall tax competitiveness, not just the business tax climate.
It was the second year in a row that New Jersey ranked No. 49, behind New York. The state with the most competitive tax system in the 2026 rankings was Wyoming, followed by South Dakota, New Hampshire, Alaska, Florida, Montana, Texas, Tennessee, Idaho, and Indiana.
“The states in the bottom 10 tend to have a number of issues in common: complex, nonneutral taxes with comparatively high rates,” the authors wrote. “New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the highest-rate corporate income tax in the country, and has one of the highest-rate individual income taxes.
“Additionally, the state has a particularly aggressive treatment of international income, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes,” the Tax Foundation said.
The Index scores the 50 states and District of Columbia across five subindices, each representing a major component of state tax codes: corporate taxes, individual income taxes, sales and excise taxes, property and wealth taxes, and unemployment insurance taxes.
Rather than weighting each subindex equally, their weight is determined according to the variance across states in each category, which has the effect of assigning more weight to areas where states have more opportunities in which to compete, the foundation said.
The Index measures tax structure, not the other things businesses care about, like an educated workforce, quality of life, proximity to relevant markets, or even the weather—and some of these things involve trade-offs. Taxes, however, are an important part of the mix, and modernizing a state’s tax structure helps position it for growth, the foundation said.
New Jersey’s income taxes are among the highest in the nation with a top marginal rate of 10.75% and a marriage penalty. Although the income tax was enacted in 1976, in part, to reduce the property tax burden, New Jersey still has among the highest per capita property tax collections in the U.S., and its property taxpayers pay the third-highest effective tax rate.
Corporations face a top marginal tax rate of 11.5 %, which includes a surtax on large businesses known as the Corporate Transit Fee. Recently, however, New Jersey largely removed global intangible low-taxed income (GILTI) from its tax base, and tangible personal property is exempt from property taxation, the Tax Foundation pointed out.
Additionally, New Jersey allows up to 20 years of net operating loss carryforwards without placing a cap on the dollar amount allowed. Although New Jersey has repealed its estate tax, it still levies an inheritance tax.
New Jersey's unemployment insurance tax rates decreased on July 1, which resulted in the state improving four positions in the rankings from No. 50 (the worst in the nation) in the 2025 Index to No. 46 in the 2026 Index.
Rates under New Jersey’s unemployment insurance tax are now between 0.5% and 5.8%, down from between 0.6% and 6.4%, due to the economic recovery of the state’s Unemployment Insurance Trust Fund, which had been depleted by record claims during the pandemic.
