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The Best (and Worst) States to Incorporate In

Which states have the best business tax climate for forming an LLC or corporation?

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 should consider many factors such as:

  • Laws & regulations
  • Available workforce
  • Transportation
  • Education
  • Quality of life
  • Weather
  • Formation fees
  • Annual fees & filings
  • Legal & court system
  • Investors
  • Business tax climate


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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 2018 State Business Tax Climate Index, here's how all 50 states stack up to each other in terms of business friendliness:



BEST 0 - 10 11 - 20 21 - 30 31 - 40 41 - 50 WORST


Here's a bit more info on the 10 best and 10 worst states for starting a corporation in 2018:


10 BEST STATES TO FORM AN LLC OR CORPORATION


1. Wyoming


  • Unemployment: 4.0% (23rd - tied with Texas)
  • Corporate tax rate: 0%
  • Sales tax rate: 4.00%
  • Individual income tax rate: 0%

As the highest-rated state in the nation for business tax friendliness yet again, Wyoming is one of handful of 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.




  • Unemployment: 3.4% (14th - tied with Kansas and Tennessee))
  • Corporate tax rate: 0%
  • Sales tax rate: 4.50%
  • Individual income tax rate: 0%

South Dakota has no corporate or individual income tax, helping it consistently rank in the number two spot year after year since 2015. The only major tax in the Mount Rushmore State that is above the national average is the state's property tax which averages 1.36%.



3. Alaska


  • Unemployment: 7.3% (51st - the highest)
  • Corporate tax rate: 9.4%
  • Sales tax rate: 0%
  • Individual income tax rate: 0%

Alaska's high total revenue per capita (mostly taken from oil and gas companies) is offset by no income taxes and no sales tax (the only state to do this), as well as a strong state economy. The downside is that America's Last Frontier has a higher than average unemployment rate.



4. Florida


  • Unemployment: 3.9% (22nd)
  • Corporate tax rate: 5.5%
  • Sales tax rate: 6.00%
  • Individual income tax rate: 0%

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



5. Nevada


  • Unemployment: 4.9% (46th - tied with Arizona)
  • Corporate tax rate: 0%
  • Sales tax rate: 6.85%
  • Individual income tax rate: 0%

A sizable chunk of the Nevada's revenue comes from taxes on gambling and high sales tax. In return, the Silver State doesn't collect any individual or corporate income taxes and is therefore one of the cheapest state to incorporate in.



6. Montana


  • Unemployment: 4.1% (25th - tied with Kentucky, Oklahoma and Oregon)
  • Corporate tax rate: 6.75%
  • Sales tax rate: 0%
  • Individual income tax rate: 6.9%

Montana has one of the lowest property taxes in the entire country—0.87% of median home value—as well as has a flat corporate income tax, with all businesses paying 6.75% of all profits. The Treasure State does have a personal income tax, ranging from 1% (the 18th-lowest rate) to 6.9% (the 15th highest rate).




  • Unemployment: 2.6% (2nd - tied with North Dakota)
  • Corporate tax rate: 8.2%
  • Sales tax rate: 0%
  • Individual income tax rate: 5%

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 second for sales tax policy. However, the state has the third highest property tax rate of any state, at an average effective rate of 2.05%.



8. Utah


  • Unemployment: 3.1% (11th)
  • Corporate tax rate: 5%
  • Sales tax rate: 5.95%
  • Individual income tax rate: 5%

Unlike most of the high ranking states for their business climate, Utah does levy taxes in all major tax areas. However, the state received good marks because its taxes were not high in any particular area. Relatively low unemployment also helps boost the local economy. Businesses should also consider local taxes in addition to state sale tax, as local tax rates can tack on up to 3.0% extra.



9. Indiana


  • Corporate tax rate: 6%
  • Sales tax rate: 7.0%
  • Individual income tax rate: 3.23%

Since the passing of legislation adopted in 2011, Indiana has slowly 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.



10. Oregon


  • Unemployment: 4.1% (25th - tied with Kentucky, Montana and Oklahoma)
  • Corporate tax rate: 7.60%
  • Sales tax rate: 0%
  • Individual income tax rate: 9.9%

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





10 WORST STATES TO INCORPORATE AN LLC OR CORPORATION



  • Unemployment: 4.5% (33rd - tied with Georgia, Louisiana, Mississippi, North Carolina and Ohio)
  • Corporate tax rate: 7.00%
  • Sales tax rate: 7.00%
  • Individual income tax rate: 5.99%

Rhode Island is renowned for being one of 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. However, sizable minimum rates on all unemployment insurance tax schedules led to the state improving on the Index, from 44th last year to 41st in 2018



42. Louisiana


  • Unemployment: 4.5% (33rd - tied with Georgia, Ohio, Mississippi, North Carolina and Rhode Island)
  • Corporate tax rate: 8%
  • Sales tax rate: 5.00%
  • Individual income tax rate: 6%

The Pelican State has the highest combined average state and local sales tax rate in the country, coming it at 50th place and dropping it into the bottom ten overall. This high sales 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.  Louisiana has fallen consistently in the rankings year after year, from 34 in 2015 to 42 in 2018.



43. Maryland


  • Unemployment: 4.2% (29th)
  • Corporate tax rate: 8.25%
  • Sales tax rate: 6.00%
  • Individual income tax rate: 5.75%

Although several Fortune 500 companies call Maryland home, the “Old Line State” has a relatively high corporate tax rate which lowers its appeal to many businesses. Maryland also has one of the highest state sales tax rates in the U.S.




  • Unemployment: 4.6% (39th - tied with New Jersey and New Yorkt)
  • Corporate tax rate: 8.25%
  • Sales tax rate: 6.35%
  • Individual income tax rate: 6.99%

The “Constitution State” ranks at towards the bottom of the every business tax friendly scale except for its Unemployment Insurance Tax rate (which is nothing to boast about at 21st place). The high corporate taxes, sales taxes, and individual income taxes make Connecticut one of the hardest places to incorporate a business in according to the Tax Foundation.



45. Ohio


  • Unemployment: 4.5% (33rd - tied with Georgia, Louisiana, Mississippi, North Carolina and Rhode Island)
  • Corporate tax rate: 0%
  • Sales tax rate: 5.75%
  • Individual income tax rate: 4.997%

Although Ohio boasts one of the best corporate tax ratings in the country, the Buckeye State ranks near the bottom for it's combination of individual income tax, state sales tax, county tax, and speciality 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


  • Unemployment: 3.2% (12th - tied with Indiana)
  • Corporate tax rate: 9.80%
  • Sales tax rate: 6.875%
  • Individual income tax rate: 9.85%

Minnesota's corporate and individual income tax rates are higher than all but a few 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


  • Corporate tax rate: 8.50%
  • Sales tax rate: 6.00%
  • Individual income tax rate: 8.95%

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 (those who earn over $413,350 per year) is especially high at 8.95%. This ranks as the sixth-highest in the U.S.




  • Unemployment: 4.3% (30th)
  • Corporate tax rate: 8.84%
  • Sales tax rate: 7.25%
  • Individual income tax rate: 13.3%

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 and new Jersey. On top of having the highest individual income tax in the nation, and the state is rated 32nd worst for its corporate tax policy. California dropped one place from last year due to local sales tax increases and a sizable increase in its cigarette tax.



49. New York


  • Unemployment: 4.6% (39th - tied with New Jersey and Connecticut)
  • Corporate tax rate: 6.50%
  • Sales tax rate: 4.00%
  • Individual income tax rate: 8.82%%

Although the Empire 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 one of the worst individual income tax policies, burdensome unemployment, and high property taxes (often double the national average in many New York counties outside of NYC).




  • Unemployment: 4.6% (39th - tied with New York and Connecticut)
  • Corporate tax rate: 9.00%
  • Sales tax rate: 6.63%
  • Individual income tax rate: 8.97%%

New Jersey again scored at or near the bottom in numerous major types of tax policies, including property taxes, individual income taxes, corporate tax, and state sales tax. The Garden State has taken last place every year since 2015.



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

33

34

South Dakota

2

1

1

33

39

25

Alaska

3

26

1

5

25

38

Florida

4

19

1

29

2

10

Nevada

5

33

1

42

45

8

Montana

6

12

21

3

20

9

New Hampshire

7

45

9

2

43

44

Utah

8

4

11

17

21

5

Indiana

9

23

10

9

10

4

Oregon

10

34

32

4

31

18

North Carolina

11

3

13

20

6

32

Michigan

12

8

14

11

48

21

Texas

13

49

6

37

26

37

Tennessee

14

21

8

45

22

29

Delaware

15

50

34

1

3

20

Missouri

16

5

28

24

7

7

Washington

17

46

6

48

17

27

Colorado

18

18

15

39

35

14

West Virginia

19

17

25

15

28

17

Idaho

20

25

23

26

46

3

Arizona

21

13

18

47

15

6

Massachusetts

22

35

12

12

49

46

Kansas

23

38

19

31

12

19

Mississippi

24

11

20

38

5

35

Nebraska

25

28

24

13

9

40

Pennsylvania

26

44

17

21

50

33

Hawaii

27

14

31

23

27

16

Maine

28

41

26

8

44

41

Illinois

29

36

16

35

42

45

North Dakota

30

16

36

34

14

2

Virginia

31

6

40

10

41

31

Oklahoma

32

9

38

36

1

15

Kentucky

33

27

29

14

47

36

New Mexico

34

24

35

40

16

1

Alabama

35

22

22

49

11

12

Georgia

36

10

42

28

38

23

South Carolina

37

15

41

32

29

24

Wisconsin

38

29

43

7

40

26

Arkansas

39

39

30

44

32

22

Iowa

40

48

33

19

34

39

Rhode Island

41

30

39

22

23

43

Louisiana

42

40

27

50

4

30

Maryland

43

20

46

18

24

42

Connecticut

44

31

37

27

19

49

Ohio

45

47

47

30

8

11

Minnesota

46

43

45

25

37

28

Vermont

47

37

44

16

18

48

District of Columbia

47

26

43

34

30

45

California

48

32

50

41

13

13

New York

49

7

49

43

30

47

New Jersey

50

42

48

46

36

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, 2017 (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 https://www.taxfoundation.org/



Simple & Straightforward Small Business Incorporation in All 50 States

While your state may not be the cheapest state to incorporate in, you may still find it more cost effective to incorporate there due to a variety of reasons. This is called home state incorporation.


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 upfront 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.