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Which states have the best business tax climate?

Discover the best (and worst) tax-friendly states for incorporating a business


Deciding on the state in which to form your corporation or LLC is relatively easy if you will only be doing business in one state.

But, the decision is much more complex if you plan to do business in multiple states or are considering incorporating in a state other than one in which you will be doing business. You will then want to see how the states under consideration compare in a number of areas.

When comparing which state to incorporate in, you'll be considering things like:

  • Laws & regulations
  • Available workforce
  • Transportation
  • Education
  • Quality of life
  • Weather
  • Business tax climate

best and worst states for business tax climate


To assist you in evaluating each state's business tax climate, we call your attention to the results of a study performed by the Tax Foundation - a nonpartisan tax research group based in Washington, D.C. that was founded in 1937. According to the Tax Foundation's 2017 State Business Tax Climate Index, here's how all 50 states stack up to each other in terms of business friendliness:


Here's a bit more info on the 10 best and 10 worst states for starting a corporation:


10 BEST STATES TO FORM A CORPORATION


1. Wyoming


  • Taxes collected per capita: $4,020 (6th)
  • Unemployment: 4.7% (29th)
  • Corporate taxes collected per capita: 0 (the lowest)
  • Sales tax rate: 5.4% (44th)

As the highest-rated state in the nation for business tax friendliness, Wyoming is one of seven states with no income or corporate tax whatsoever. But while other states that do not tax income choose instead to tax sales heavily, Wyoming does not.




  • Taxes collected per capita: $1,950 (45th)
  • Unemployment: 2.8% (2nd lowest - tied with Hawaii)
  • Corporate taxes collected per capita: $72 (40th)
  • Sales tax rate: 6.39% (31st)

In 2011, South Dakota only collected $19 per capita of corporate income tax, lower than all other states excluding the four states that do not collect corporate taxes. The state also boasts an unemployment rate of just 4.4%, lower than all states except for North Dakota and Nebraska.



3. Alaska


  • Taxes collected per capita: $1,170 (50th - the lowest)
  • Unemployment: 6.4% (50th - the highest)
  • Corporate taxes collected per capita: $912 (1st - the highest)
  • Sales tax rate: 1.76 (46th)

Alaska's high total revenue per capita (mostly taken from oil and gas companies) is offset by no income taxes, strong state economy, and a lower than average unemployment rate across the country.



4. Florida


  • Taxes collected per capita: $1,836 (49th)
  • Unemployment: 5.0% (35th - tied with California and Pennsylvania)
  • Corporate taxes collected per capita: $104 (32nd)
  • Sales tax rate: 6.8% (28th)

The Sunshine State has no individual income tax, a relatively low flat corporate tax rate of 5.5%, and a number of tax deductions that allow nearly half of the state's businesses to avoid having to pay taxes altogether.



5. Nevada


  • Taxes collected per capita: $2,606 (31st)
  • Unemployment: 4.9% (31st - tied with Kentucky and Texas)
  • Corporate taxes collected per capita: 0
  • Sales tax rate: 7.98% (13th)

A sizable chunk of the state's revenue comes from taxes on gambling revenue and high sales tax. In return, Nevada doesn't collect any individual or corporate income taxes.



6. Montana


  • Taxes collected per capita: $2,753 (23rd)
  • Unemployment: 3.8% (15th)
  • Corporate taxes collected per capita: $132 (23rd)
  • Sales tax rate: none (the lowest)

Montana has some of the lowest property taxes in the entire country—0.72% of median home value in 2011—as well as has a flat corporate income tax, with all businesses paying 6.75% of all profits.




  • Taxes collected per capita: $1,870 (48th)
  • Unemployment: 2.7% (1st - the lowest)
  • Corporate taxes collected per capita: $395 (3rd)
  • Sales tax rate: none (the lowest)

New Hampshire is the only state other than Tennessee that restricts personal income taxes to just interest and dividends, ranking ninth in the nation for individual income policy and first for sales tax policy. However, the state had the highest property tax rate in 2012, at 5.68% of residents' income.



8. Indiana


  • Taxes collected per capita: $2,628 (28th)
  • Unemployment: 4.1% (20th - tied with Missouri)
  • Corporate taxes collected per capita: $122 (27th)
  • Sales tax rate: 7.0% (21st)

Since the passing of legislation adopted in 2011, Indiana has increased on the Business Tax Index each year by lowering its corporate income tax rate. Further reductions are planned through 2022 with a schedule phase down to 4.9 percent. Indiana also ranks well on the index in property taxes, unemployment insurance, sales tax and individual income tax.



9. Utah


  • Taxes collected per capita: $2,237 (38th)
  • Unemployment: 3.1% (7th)
  • Corporate taxes collected per capita: $91 (37th)
  • Sales tax rate: 6.76% (30th)

Unlike most of the high ranking states for their business climate, Utah does levy taxes in all five tax areas measured by the Tax Foundation; however, the state received good marks because its taxes were not high in any particular area.



10. Oregon


  • Taxes collected per capita: $2,625 (29th)
  • Unemployment: 4.0% (17th - tied with Kansas and Minnesota)
  • Corporate taxes collected per capita: $125 (26th)
  • Sales tax rate: none (the lowest)

Oregon actually ranks low on the totem pole for its corporate tax rate, individual income tax rate and unemployment insurance rate. However, the state's 4th place ranking in sales tax just barely pushes the Beaver State into the top ten.





10 WORST STATES TO INCORPORATE YOUR BUSINESS


41. Louisiana


  • Taxes collected per capita: $2,081 (39th)
  • Unemployment: 5.8% (48th)
  • Corporate taxes collected per capita: $63 (1st - the lowest)
  • Sales tax rate: 9.98% (1st - the highest)

The "Pelican State" has the worst sales tax ranking in the entire country, coming it at 50th place and dropping it into the bottom ten overall from 36th the year before. This high tax rate is due to a decrease in revenue and structural shortfalls. The combined state and local sales tax rate is now approaching 10 percent.



42. Maryland


  • Taxes collected per capita: $3,305 (12th)
  • Unemployment: 4.2% (22nd)
  • Corporate taxes collected per capita: $150 (18th)
  • Sales tax rate: 6.0% (38th)

Even though the "Old Line State" boasts the 10th best business tax climate in the country, a relatively high corporate tax rate lowers its appeal to many businesses.




  • Taxes collected per capita: $4,438 (5th)
  • Unemployment: 4.7% (29th - tied with Wyoming)
  • Corporate taxes collected per capita: $175 (12th)
  • Sales tax rate: 6.35% (32nd)

The "Constitution State" ranks at towards the bottom of the every business tax friendly scale except for its Unemployment Insurance Tax rate, which it is not much to boast about either at 21st place. The high corporate taxes, sales taxes and individual income taxes make Connecticut one of the worst states to incorporate a business in according to the Tax Foundation.




  • Taxes collected per capita: $3,026 (16th)
  • Unemployment: 4.5% (26th - tied with Delaware)
  • Corporate taxes collected per capita: $117 (30th)
  • Sales tax rate: 7.0% (21st)

On top of being tied with California for having the highest unemployment rate in the country, Rhode Island is the worst state for unemployment insurance taxes. This is especially problematic for business owners who must foot the bill for the state's unemployment insurance programs.



45. Ohio


  • Taxes collected per capita: $2,437 (34th)
  • Unemployment: 5.1% (38th - tied with Arizona and North Carolina)
  • Corporate taxes collected per capita: $30 (46th)
  • Sales tax rate: 7.14% (19th)

In addition to having the fifth worst corporate tax rating out of every state in the country, the Buckeye State also ranked in the bottom three for it's high individual income tax. Despite securing the number four spot for unemployment insurance tax and having a decent property tax rating, Ohio repeatedly ranks at the low end of the business tax friendliness scale.



46. Minnesota


  • Taxes collected per capita: $4,452 (4th)
  • Unemployment: 4.0% (17th - tied with Kansas and Oregon)
  • Corporate taxes collected per capita: $199 (10th)
  • Sales tax rate: 7.30% (17th)

Minnesota's corporate and individual income tax rates are higher than all but six states, and it is one of just a handful of places across the country where lawmakers are seeking to further raise an already high sales tax rate in order to offset personal income taxes.



47. Vermont


  • Taxes collected per capita: $4,861 (2nd)
  • Unemployment: 3.0% (6th)
  • Corporate taxes collected per capita: $154 (17th)
  • Sales tax rate: 6.18% (36th)

Business owners running sole proprietorships and partnerships who pay taxes through individual income returns should know that the tax rate paid by Vermont's highest income bracket is especially high at 8.95%.




  • Taxes collected per capita: $3,862 (9th)
  • Unemployment: 5.0% (35th - tied with Florida and Pennsylvania)
  • Corporate taxes collected per capita: $210 (9th)
  • Sales tax rate: 8.25% (10th)

While California doesn't have a problem attracting large employers (Apple, Google, Hewlett-Packard, etc.), it is continually ranked lower than all other states except New York in terms of individual income tax, and the state is rated sixth worst for its corporate tax policy.



49. New York


  • Taxes collected per capita: $3,952 (8th)
  • Unemployment: 4.4% (23rd - tied with New Jersey and South Carolina)
  • Corporate taxes collected per capita: $539 (2nd)
  • Sales tax rate: 8.49% (9th)

Although the state actually ranks in the better half in terms of corporate tax policies, New York has the second worst business climate in the nation, according to the Tax Foundation. This is because it retains the worst individual income tax policies, and burdensome unemployment and property taxes.




  • Taxes collected per capita: $3,524 (11th)
  • Unemployment: 4.4% (23rd - tied with New York and South Carolina)
  • Corporate taxes collected per capita: $218 (8th)
  • Sales tax rate: 6.85% (26th)

New Jersey scored at or near the bottom in several different types of tax policies, including property taxes, individual income taxes and state sales tax. The state took last place in 2012 and 2017.



Where Does Your State Rank?

State Business Tax Climate Index Table


State

Overall Rank

Corporate Tax Rank

Individual Income Tax Rank

Sales Tax Rank

Unemployment Insurance Tax Rank

Property Tax Rank

Wyoming

1

1

1

6

31

38

South Dakota

2

1

1

32

40

23

Alaska

3

27

1

5

29

22

Florida

4

19

1

28

2

10

Nevada

5

34

1

41

43

8

Montana

6

13

21

3

19

9

New Hampshire

7

46

9

2

41

43

Indiana

8

23

11

10

10

4

Utah

9

3

12

17

22

5

Oregon

10

35

32

4

33

18

North Carolina

11

4

15

19

6

31

Michigan

12

8

14

9

47

25

Tennessee

13

22

8

46

23

29

Texas

14

49

6

37

12

37

Missouri

15

5

28

24

7

7

Colorado

16

18

16

39

42

14

Washington

17

48

6

49

18

27

West Virginia

18

17

26

15

27

13

Delaware

19

50

34

1

3

20

Idaho

20

24

23

26

46

2

Arizona

21

19

19

47

13

6

Kansas

22

39

18

30

11

19

Illinois

23

26

10

35

38

46

Pennsylvania

24

44

17

20

45

32

Nebraska

25

29

24

12

8

39

Hawaii

26

11

31

23

24

17

Massachusetts

27

37

13

18

49

45

Mississippi

28

12

20

38

5

35

North Dakota

29

16

36

34

15

3

Maine

30

41

25

8

44

41

Oklahoma

31

9

38

36

1

12

Alabama

32

14

22

48

14

16

Virginia

33

6

40

11

39

28

Kentucky

34

28

30

13

48

36

New Mexico

35

25

35

42

17

1

Georgia

36

10

42

33

35

21

South Carolina

37

15

41

31

37

26

Arkansas

38

40

29

44

30

24

Wisconsin

39

30

43

7

36

34

Iowa

40

47

33

21

34

40

Louisiana

41

36

27

50

9

30

Maryland

42

21

46

14

26

42

Connecticut

43

32

37

27

21

49

Rhode Island

44

31

39

22

50

44

Ohio

45

45

47

29

4

11

Minnesota

46

43

45

25

28

33

Vermont

47

38

44

16

20

48

District of Columbia

47

31

43

33

27

47

California

48

33

50

40

16

15

New York

49

7

49

43

32

47

New Jersey

50

42

48

45

25

50

Note: A rank of 1 is best, 50 is worst. Rankings do not average to the total. States without a tax rank equally as 1. D.C.'s score and rank do not affect other states. The report shows tax systems as of July 1, 2016 (the beginning of Fiscal Year 2017). Source: Tax Foundation

To read more about these results and how the study is conducted, visit the organization's web site at http://www.taxfoundation.org/



Simple & Straightforward Small Business Incorporation in All 50 States

While your state may be on the "worst" list, you may still find it more cost effective
to just incorporate in your home state due to a variety of reasons.


MaxFilings assists entrepreneurs and businesses in all 50 states and the District of Columbia incorporate and satisfy the requirements for their state. Our online incorporation system is secure and user-friendly, and provides up front pricing for your state and corporate structure. You can begin forming your corporation and come back later to finish.

Check out our incorporation blog for up-to-date news and tips for not only forming your corporation or LLC, but also keeping your company in good status with your particular state's authorities. And as always, please feel free to contact us with any questions or comments about your company's incorporation.