In most states, corporations are also required to pay state income tax.  Since state income taxes are an allowable deduction in computing federal income taxes, it is important to know how to take this deduction into consideration.

The simplest way to do this is to compute the state income tax on the taxable income, deduct the state income tax from the taxable income to compute the taxable income subject to federal income tax, and compute the federal income tax on the reduced taxable income.    In a spreadsheet type analysis this may be the more convenient method.

An alternative method is to use Equation 11.1 and compute the combined marginal tax rate that combines both the state and the federal marginal rates.  Since this method requires the knowledge of the applicable incremental rates, which may not always be readily available, it is not recommended when incremental rates are not provided.