Depending on how it is measured, the effective state and local tax rate on corporate profits shrunk by between a third and a half between 1989 and 2017. The resulting revenue shortfall is estimated to be at least $43 billion and possibly as high as $57 billion.

The erosion of state corporate income tax revenue has nothing to do with corporations’ ability to pay. Indeed, corporate profits have risen even as corporate tax revenues have declined.

Information obtained from seven states reveals that the majority of corporations operating in these states pay no state corporate income tax. And depending on the state, between 11% and 22% of corporations with over $1 billion in federal taxable income pay nothing or next to nothing in state corporate income taxes.

The decline can be traced to a combination of state corporate income tax cuts, a rise in the share of corporate profits earned by S-corporations, which are exempt from most state corporate income taxes, and the ability of large, profitable corporations to exploit loopholes that allow them to minimize their tax bills.

This has real consequences for state and local spending—constraining these governments’ ability to provide basic services to their residents.