Deciding on the location for your business is one of the most important decisions you’ll make.
Why does it matter so much?
Because the state you incorporate in will determine the business and tax regulations you must follow, the amount of taxes you’ll pay, and startup and filing fees.
Since starting a business is a life-changing event, you want to give your business the best chance of success.
Take the time to read the following information about the most business friendly states before choosing a location for your business. You’ll be glad you did!
If you have any questions about the information you read, please consult with me by emailing me at sam@mollaeilaw.com today.
Best States to Do Business
The best states to do business is generally the state in which you will be doing business.
There may be some advantages to choosing a state other than the one you’re going to do business in, but this is something you should discuss with your business lawyer.
In general, forming your business in a state other than your own isn’t very advantageous unless you have five or more shareholders.
When you start a business outside of your own state, you become a foreign-entity and there are additional fees and regulations you must follow.
Delaware, Wyoming, and Nevada are among the top states for out-of-state incorporation.
If you are a non-US resident, then I would recommend forming your business in Delaware. Email me if you have any questions about this.
Best States for Business 2017
The best states for business 2017 are Wyoming, South Dakota, Alaska, Florida, Nevada, Montana, New Hampshire, Indiana, Utah, and Oregon.
The Tax Foundation published the 2017 State Business Tax Climate Index to rank how well states structure their tax systems.
When it comes to the list of the ten best states for business 2017, there is one major common factor: taxes.
Almost every state on the list doesn’t have one of the major taxes. It’s either the sales tax, the individual income tax, or the corporate income tax.
Nevada, South Dakota, and Wyoming all impose no individual or corporate income tax. However, it’s important to note that Nevada does have a gross receipts tax.
Montana, New Hampshire, and Oregon have no sales tax. Florida imposes no individual income tax. Alaska said goodbye to both income and state-level taxes.
With that said, there are states that impose all of the major taxes and still manage to rank in the top ten.
Utah and Indiana are examples of this, but they do offer low tax rates that are appealing and place them among the list of lowest business tax states.
Best State for Business Taxes
The best state for business taxes is South Dakota. Wyoming, Alaska, Nevada, Florida, Montana, New Hampshire, Delaware, Washington, and Utah finish the top ten list of lowest business tax states.
This list is from the Tax Foundation’s 2017 State Business Tax Climate Index because that list is based on taxation.
Let’s look again at the top ten best states to do business, based on taxes alone:
- South Dakota: No individual or corporate income tax
- Wyoming: No individual or corporate income tax
- Alaska: No state-level sales tax or individual income tax (some jurisdictions so impose sales taxes)
- Nevada: No individual or corporate income tax
- Florida: No individual income tax
- Montana: No sales tax
- New Hampshire: No sales tax
- Delaware: No sales tax
- Washington: No corporate or individual income tax
- Utah: Imposes all major taxes but has low property taxes as well as a business-friendly unemployment insurance tax system.
You should consult with your business lawyer to determine if incorporating in one of the top ten states is a good idea for your business.
You may be in a situation in which the disadvantages drown the tax advantages.
Email me at sam@mollaeilaw.com and we’ll schedule your free consultation to determine which of these lowest business tax states makes sense for your business.
Worst States for Business
The worst states for business are Iowa, Ohio, California, New York, and New Jersey because they are the least tax-friendly.
Let’s take a look at why the states received such a low ranking:
New Jersey made the bottom of the list as the worst state for business. This is because New Jersey has very high rates in almost all of the tax types.
New York was ranked 49 on the 2017 list of worst states for business. New York enacted two new personal income tax brackets that imposed a 30% increase in the top rate from last year.
California made number 48 on the list because of an increase in state sales taxes. California’s sales tax is 8.25%, which makes it one of the highest state rates in the United States.
California also increased each personal tax bracket by 0.25%, an 8.84% corporate income tax rate, and imposed Alternative Minimum Tax (AMT) at the individual and corporate level.
Even though California gets a bad reputation due to taxes, there are benefits to registering your business in California that you may want to consider.
Ohio was ranked 47 on the list. Ohio has high property taxes and includes an intangible property tax as well. Additionally, Ohio’s gross receipts tax allows no deduction for employee compensation or cost of goods sold.
Iowa started the bottom five, at number 46 on the list. Iowa doesn’t tie tax increases to inflation and they impose an individual and corporate AMT.
If factors beyond taxation are considered, the list looks a little bit different.
Instead, the bottom states are Maryland, Wisconsin, Arkansas, Vermont, Maine, and Hawaii.
The order of these states is:
45. Maryland
46. Wisconsin
47. Arkansas
48. Vermont
49. Maine
50. Hawaii
Maryland makes this list because it has few available workers, the third-worst business survival rate, and a high cost of living.
Wisconsin is on the list because the second lowest rate of new business owners as well as a low opportunity share for entrepreneurs.
Arkansas is 47 on the list because of its low employee education level, weak GDP per capita, and poor business tax environment.
Vermont isn’t a great state to start a business in because there aren’t many employees available, few new businesses, and there is a high cost of living.
Maine is almost last on this list because its GDP per capita is the seventh lowest in the USA. Main also has little opportunity for new entrepreneurs and few startups.
Coming in last as the least business friendly state is Hawaii. While it may be beautiful, Hawaii is far from ideal for starting a business.
Hawaii has the highest cost of living in the United States, which is one of the main reasons it’s the least business friendly state in the country.
The state’s potential employee education level is among the lowest in the nation.
If your state made the list of the least tax-friendly businesses, don’t panic. While the taxes in these states are often high, there are benefits that you may be able to take advantage of as well.
This list includes the states that are the least favorable in terms of taxes.
If you’re starting a small business in the state you live in, and it happens to be one of these states, even with the higher taxation, you may be better off in your state than forming an out-of-state business.
Best States for Small Business
The best states for small business are Wyoming, Alaska, Nevada, Texas, Delaware, Utah, Illinois, Missouri, Virginia, and Florida.
This list of the 10 best states to do business comes from GOBankingRates.com.
The top 10 business friendly states were rated on these factors:
- The growth of new entrepreneurs and startup density
- The ratio of business being created versus businesses ending
- Productivity based on per capita GDP
- The cost of living
- Number of employees available for jobs
- Potential employees’ education level
- Business tax climate
Why Wyoming is the Best State for Business
Wyoming is considered the best state for business. Wyoming has no corporate or individual income tax nor gross receipts tax. Even their sales tax rate ranks in the top 25% of best sales tax states.
Wyoming also made number four on the list of highest rate of new entrepreneurs and has a strong startup score. The ratio of business created to business closing is 1.61.
Why Alaska is the Best State for Business
Alaska is listed as the second-best state for business. Even though Alaska has ten tax brackets for corporate income tax, it boasts the third best business tax climate in the USA.
Alaska has no state sales tax and no individual income tax, which explains why it’s so high on the list for business tax climate.
Alaska also ranks number two on the list of the highest rates of new entrepreneurs. The state has the highest per capita GDP.
Unfortunately, Alaska has the worst education level of potential employees in the country, but it also has the second-highest number of available employees.
Why Nevada is the Best State for Business
Nevada comes in third in the list of business friendly states, all thanks to favorable economic conditions.
Nevada has the best startup activity score out of all of the states and is among the top states in terms of highest density of startups.
Nevada also has the most employees available in the country.
Why Texas is the Best State for Business
Texas is fourth on the list because of its cost of living, high density of startups, and growth of new entrepreneurs.
Texas is also comes in fourth for the number of new entrepreneurs as well as placing fourth for startup density.
Why Delaware is the Best State for Business
Delaware just squeezed by to make the top five list. Delaware has a tax climate better than most states and plenty of opportunity for new entrepreneurs.
Perhaps what really pushed Delaware in the top five is that it has the fifth-highest per capita GDP in the country.
Why Utah is the Best State for Business
Utah comes in at sixth on the list, mostly due to it having the third highest startup density in the country.
Utah also places at an impressive second for potential employees’ education level.
Why Illinois is the Best State for Business
Illinois is seventh on the list. While it has a low rate of new entrepreneurs, there are plenty of employees available to hire.
The state also has a healthy per capita GDP and a low cost of living.
Why Missouri is the Best State for Business
Missouri made it to a respectable eighth place on the list. The state comes in fifth for the chance of business survival.
Missouri also has the fifth-highest startup density and an affordable cost of living.
Why Virginia is the Best State for Business
Virginia comes in at ninth place on the list because it has the highest chance of business survival rate.
Virginia also offers a well-educated pool of employees and higher than average opportunity for new entrepreneurs.
Why Florida is the Best State for Business
Florida grabbed the last spot on the top ten list because of its high startup activity.
Florida ranks second for the highest startup density and offers no income taxes, which creates a favorable business tax climate.
If it makes since for your business to incorporate out of state, you may want to consider one of the above states to do business in. Get started by emailing sam@mollaeilaw.com today.
Best State for Business in USA
The best state for business in USA is Delaware.
Keep in mind that Delaware isn’t necessarily the best state for you unless you can take advantage of all the benefits Wyoming offers.
Delaware has a growing population of entrepreneurs and a healthy business survival rate.
The state also offers the benefit of no corporation or personal income taxes and a low sales tax rate, which is why it has the top spot on the list of most business friendly states.
Conclusion
The most business friendly states are Wyoming, Alaska, Nevada, Texas, Delaware, Utah, Illinois, Missouri, Virginia, and Florida.
Just because these states are considered the best states to do business, it doesn’t mean that one of these are the best state for your business.
Unless you have five or more shareholders, you should likely incorporate in the state you live in.
If you’re ready to start your business, contact me at sam@mollaeilaw.com today and I will help you get started with the decision-making process and the initial paperwork.
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