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The Best (and Worst) States to Incorporate In: A Guide


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

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When you're starting a business and still in the early stages of going it alone, it can be easy to think of incorporation as unnecessary or even a hassle. We won't tell you there isn't a lot of paperwork that goes with it (there is!). But there are real and tangible benefits of incorporation that make it worth the investment of time.

Incorporating your business serves to separate your individual finances from those of the business. This means creditors or anyone else filing legal action can't come after you personally. The small business owner who incorporates generally won't lose their house because of the business, and protecting yourself from this alone might make incorporation worthwhile for you.

An incorporated business structure can also do things a sole proprietor can't. Namely, there are an array of tax deductions offered to corporations. You can write off travel and insurance costs, just to name a couple.

Finally, you may be flying solo right now, but most entrepreneurs have dreams of bigger things. That likely means getting more capital, which means attracting investors. An established corporate structure—with all those legal requirements that can seem so onerous—now works to your benefit. The legal standards a corporation must meet also give a powerful legitimacy to the business that make it easier to attract new capital.

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 non-partisan tax research group based in Washington, D.C. founded in 1937. According to the Tax Foundation's 2020 State Business Tax Climate Index, here's how all 50 states stack up to each other in terms of business friendliness:

2020 State Business Tax Climate Index

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

10 BEST states to form an LLC or corporation in 2020


1. Wyoming

wyoming state icon
  • Corporate Tax Rate Rank: 1st
  • Individual Income Tax Rank: 1st
  • Sales Tax Rank: 6th
  • Property Tax Rank: 39th
  • Unemployment Insurance Tax Rank: 37th

Wyoming continues to be the gold standard of business tax-friendliness, with its twin #1 rankings in corporate and personal income tax. However, the state did slip back modestly in the unemployment and property tax areas. This continues a 3-year pattern of modest change in either direction in these areas, but never affecting the state's overall status.



south dakota state icon
  • Corporate Tax Rate Rank: 1st
  • Individual Income Tax Rank: 1st
  • Sales Tax Rank: 35th
  • Property Tax Rank: 22nd
  • Unemployment Insurance Tax Rank: 24th

Two years ago, South Dakota's unemployment tax ranking was 40th. It nudged to 39th last year and then made a big leap to 22nd this year. That's the biggest change that allowed South Dakota to nudge past Alaska for the #2 spot nationally.



3. Alaska

alaska state icon
  • Corporate Tax Rate Rank: 26th
  • Individual Income Tax Rank: 1st
  • Sales Tax Rank: 5th
  • Property Tax Rank: 25th
  • Unemployment Insurance Tax Rank: 46th

Unemployment taxes were a factor in Alaska's modest slip from the #2 spot. The Last Frontier took a tumble from #25 all the way to #46 in this area. But no income tax is still a pretty nice advantage and it's the main reason why Alaska remains one of the best states to start a business.



4. Florida

florida state icon
  • Corporate Tax Rate Rank: 9th
  • Individual Income Tax Rank: 1st
  • Sales Tax Rank: 23rd
  • Property Tax Rank: 13th
  • Unemployment Insurance Tax Rank: 2nd

The Sunshine State is #4 for the third straight year, but its position gets progressively stronger. In recent years, Florida has sought to cut corporate taxes. After 2 straight years at #19 in this area, it jumped into the top 10.



5. Montana

montana state icon
  • Corporate Tax Rate Rank: 21st
  • Individual Income Tax Rank: 25th
  • Sales Tax Rank: 3rd
  • Property Tax Rank: 12th
  • Unemployment Insurance Tax Rank: 20th

Montana is noteworthy for not having strong rankings in the corporate and individual income tax areas, a trait shared only by Oregon among those in the top 10. But the state's low sales tax and overall position in each individual area is relatively unchanged over a 3-year period.



new hampshire state icon
  • Corporate Tax Rate Rank: 43rd
  • Individual Income Tax Rank: 9th
  • Sales Tax Rank: 1st
  • Property Tax Rank: 44th
  • Unemployment Insurance Tax Rank: 45th

The Granite State lets you make money and spend it in a tax-friendly way, with their lack of sales tax and low income tax leading to strong rankings in both categories. That has been more than enough to make up for high taxes and poor rankings in the other 3 areas.



7. Oregon

oregon state icon
  • Corporate Tax Rate Rank: 33rd
  • Individual Income Tax Rank: 38th
  • Sales Tax Rank: 4th
  • Property Tax Rank: 18th
  • Unemployment Insurance Tax Rank: 36th

A lot of Oregon's numbers don't necessarily look good on the surface, but the state's strong sales tax ranking and a solid property tax position means Oregon is a friendly state to set up a physical store.



8. Utah

utah state icon
  • Corporate Tax Rate Rank: 12th
  • Individual Income Tax Rank: 10th
  • Sales Tax Rank: 22nd
  • Property Tax Rank: 5th
  • Unemployment Insurance Tax Rank: 15th

Utah's presence in the top 10 obviously means it's a good state to do business in, but the trend is not positive for the Beehive State. Specifically, it's losing ranking on corporate taxes, falling from a high of 3rd place just 2 years ago.



9. Nevada

nevada state icon
  • Corporate Tax Rate Rank: 25th
  • Individual Income Tax Rank: 5th
  • Sales Tax Rank: 44th
  • Property Tax Rank: 10th
  • Unemployment Insurance Tax Rank: 47th

Nevada used to be one of the states that shared the top spot for individual income taxes. Some ground has been lost there, while a ranking share has been gained in corporate taxes, which were 34th just a year ago.



10. Indiana

indiana state icon
  • Corporate Tax Rate Rank: 11th
  • Individual Income Tax Rank: 15th
  • Sales Tax Rank: 20th
  • Property Tax Rank: 2nd
  • Unemployment Insurance Tax Rank: 25th

The Hoosier State did a lot of shuffling to remain in the top 10. Indiana made sharp improvements on ranking for corporate and sales taxes, while declining on unemployment tax. Still, the overall ranking moved from just 9th to 10th.






10 WORST states to form an LLC or corporation in 2020


41. Louisiana

louisiana state icon
  • Corporate Tax Rate Rank: 37th
  • Individual Income Tax Rank: 32nd
  • Sales Tax Rank: 48th
  • Property Tax Rank: 33rd
  • Unemployment Insurance Tax Rank: 4th

Louisiana has made strides, moving off the dreaded 50-line for sales taxes. The state also made some modest moves upward in corporate and unemployment taxes. But it remains at #41 for the third straight year, unable to escape the last 10.



42. Iowa

iowa state icon
  • Corporate Tax Rate Rank: 48th
  • Individual Income Tax Rank: 42nd
  • Sales Tax Rank: 15th
  • Property Tax Rank: 35th
  • Unemployment Insurance Tax Rank: 35th

Iowa's overall position hasn't changed much over the last 3 years. Those high taxes on corporate income, individual income and property are difficult to overcome. But the sales tax ranking is steadily improving, from 21st (2018) to 19th (2019) to 15th (2020).



43. Maryland

maryland state icon
  • Corporate Tax Rate Rank: 32nd
  • Individual Income Tax Rank: 45th
  • Sales Tax Rank: 19th
  • Property Tax Rank: 42nd
  • Unemployment Insurance Tax Rank: 33rd

Much like Iowa, Maryland's overall position in the national rankings is stable. Unlike Iowa, the Terrapin State is moving in the wrong direction beneath the surface, losing significant ground on corporate and property taxes.



44. Vermont

vermont state icon
  • Corporate Tax Rate Rank: 45th
  • Individual Income Tax Rank: 39th
  • Sales Tax Rank: 16th
  • Property Tax Rank: 49th
  • Unemployment Insurance Tax Rank: 16th

Vermont has nudged up 3 spots overall, from 47th the last 2 years to 44th this year. Even though it lost ground on corporate taxes, it was countered with an improvement in its income tax ranking.



45. Minnesota

minnesota state icon
  • Corporate Tax Rate Rank: 44th
  • Individual Income Tax Rank: 46th
  • Sales Tax Rank: 28th
  • Property Tax Rank: 26th
  • Unemployment Insurance Tax Rank: 34th

Very little has changed in the Minnesota tax climate over the last 3 years and that means the overall ranking continues to lag. Businesses can expect high corporate and personal taxes to go with the cold weather.



46. Arkansas

arkansas state icon
  • Corporate Tax Rate Rank: 34th
  • Individual Income Tax Rank: 40th
  • Sales Tax Rank: 46th
  • Property Tax Rank: 29th
  • Unemployment Insurance Tax Rank: 23rd

Arkansas is a new addition to the bottom 10, although it barely escaped the last 2 years with national rankings of 38th and 39th. A further weakening of its position on income taxes, property taxes and unemployment taxes is the reason why this state ranked so low in 2020.



connecticut state icon
  • Corporate Tax Rate Rank: 27th
  • Individual Income Tax Rank: 43rd
  • Sales Tax Rank: 26th
  • Property Tax Rank: 50th
  • Unemployment Insurance Tax Rank: 21st

Connecticut is known as the Land of Steady Habits and that's proven regrettably true for businesses looking to incorporate. The state continues to hold its spot in the bottom 10, even securing last place for property taxes this time around.



california state icon
  • Corporate Tax Rate Rank: 28th
  • Individual Income Tax Rank: 49th
  • Sales Tax Rank: 45th
  • Property Tax Rank: 16th
  • Unemployment Insurance Tax Rank: 22nd

California is making some progress with its corporate tax rates and the unemployment insurance tax. But the needle isn't being moved significantly because of the income tax problem. Last year, California fell from 33rd to 50th in this area and really didn't improve over the last 12 months.



49. New York

new york state icon
  • Corporate Tax Rate Rank: 13th
  • Individual Income Tax Rank: 48th
  • Sales Tax Rank: 43rd
  • Property Tax Rank: 46th
  • Unemployment Insurance Tax Rank: 38th

The relatively lower corporate tax rate is clearly where the Empire State is trying to be attractive for business. But even that comes with a gray cloud—it used to be in the top 10. New York's unemployment insurance ranking is also slipping.



new jersey state icon
  • Corporate Tax Rate Rank: 49th
  • Individual Income Tax Rank: 50th
  • Sales Tax Rank: 42nd
  • Property Tax Rank: 47th
  • Unemployment Insurance Tax Rank: 30th

If you're looking for a positive here, it's that New Jersey has made substantial improvement in its unemployment tax ranking. But that comes in conjunction with already-poor rankings for corporate and income taxes getting worse.



Where does your state rank?

Check out the accompanying chart. Keep in mind that when you see duplicate numbers (i.e., the first 2 states both ranking first in corporate tax rank) that indicates a tie.

State business tax climate index table


State-Rank

Corporate Tax Rank

Individual Income Tax Rank

Sales Tax Rank

Property Tax Rank

Unemployment Insurance Tax Rank

1. Wyoming

1

1

6

39

37

2. South Dakota

1

1

35

22

44

3. Alaska

26

1

5

25

46

4. Florida

9

1

23

13

2

5. Montana

21

25

3

12

20

6. New Hampshire

43

9

1

44

45

7. Nevada

25

5

44

10

47

8. Oregon

33

38

4

18

36

9. Utah

12

10

22

5

15

10. Indiana

11

15

20

2

25

11. Delaware

50

41

2

6

3

12. Michigan

18

12

9

24

17

13. Texas

47

6

36

38

12

14. Missouri

5

24

24

7

9

15. North Carolina

3

16

21

34

10

16. North Dakota

19

20

27

3

13

17. Colorado

7

14

37

14

43

18. Tennessee

24

8

47

31

24

19. Washington

41

6

49

27

19

20. Arizona

22

17

40

8

6

21. Idaho

29

26

12

4

48

22. New Mexico

20

31

41

1

8

23. West Virginia

15

28

18

17

29

24. Kentucky

17

18

14

36

49

25. Virginia

14

35

11

32

41

26. Wisconsin

30

37

7

23

37

27. Oklahoma

8

33

39

19

1

28. Nebraska

31

21

10

41

11

29. Pennsylvania

46

19

17

21

42

30. South Carolina

4

34

31

30

26

31. Mississippi

10

27

34

37

5

32. Georgia

6

36

29

28

39

33. Maine

38

22

8

43

32

34. Kansas

35

23

38

20

14

35. Illinois

36

13

33

40

40

36. Massachusetts

39

11

13

48

50

37. Hawaii

16

47

30

11

28

38. Ohio

42

44

32

9

7

39. Rhode Island

40

29

25

45

31

40. Alabama

23

30

50

15

18

41. Louisiana

37

32

48

33

4

42. Iowa

48

42

15

35

35

43. Maryland

32

45

19

42

33

44. Vermont

45

39

16

49

16

45. Minnesota

44

46

28

26

34

46. Arkansas

34

40

46

29

23

47. Connecticut

27

43

26

50

21

48. California

28

49

45

16

22

49. New York

13

48

43

46

38

50. New Jersey

49

50

42

47

30

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, 2019 (the beginning of Fiscal Year 2020). Source: Tax Foundation




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.


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