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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


Some factors, such as education, quality of life and weather, are subjective according to the needs of your family and your personal taste. Others, like the regulatory climate, available workforce and transportation and the legal system are important objective considerations.

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But tax climate is the biggest factor most business owners want to know about.

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. founded in 1937. According to the Tax Foundation's 2019 State Business Tax Climate Index, here's how all 50 states stack up to each other in terms of business friendliness:



The 2019 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

Here's a bit more info on the 10 best and 10 worst states for starting a corporation in 2019:


1. Wyoming


  • Corporate Tax Rate Rank: 1st
  • Individual Income Tax Rank: 1st
  • Sales Tax Rank: 6th
  • Property Tax Rank: 38th
  • Unemployment Insurance Tax Rank: 36th

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



2. Alaska


  • Corporate Tax Rate Rank: 25th
  • Individual Income Tax Rank: 1st
  • Sales Tax Rank: 5th
  • Property Tax Rank: 23rd
  • Unemployment Insurance Tax Rank: 35th

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.




  • Corporate Tax Rate Rank: 1st
  • Individual Income Tax Rank: 1st
  • Sales Tax Rank: 33rd
  • Property Tax Rank: 28th
  • Unemployment Insurance Tax Rank: 39th

South Dakota has no corporate or individual income tax, enabling them to more than offset for comparatively high taxes for sales, property and unemployment insurance. South Dakota has ranked in the top three nationally each year since 2015.



4. Florida


  • Corporate Tax Rate Rank: 6th
  • Individual Income Tax Rank: 1st
  • Sales Tax Rank: 22nd
  • Property Tax Rank: 11th
  • Unemployment Insurance Tax Rank: 2nd

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 Sunshine State's businesses to avoid having to pay taxes altogether.



5. Montana


  • Corporate Tax Rate Rank: 12th
  • Individual Income Tax Rank: 22nd
  • Sales Tax Rank: 3rd
  • Property Tax Rank: 10th
  • Unemployment Insurance Tax Rank: 21st

Montana's strength is built on strong rankings for sales taxes and low property taxes. Combined with a flat corporate income tax rate that helps them rank in the top five, even with a progressive personal income tax structure that can reach nearly 7 percent.




  • Corporate Tax Rate Rank: 45th
  • Individual Income Tax Rank: 9th
  • Sales Tax Rank: 1st
  • Property Tax Rank: 44th
  • Unemployment Insurance Tax Rank: 44th

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. The Granite State's lack of a sales tax also makes it a shoppers' destination in New England. But business owners will pay the price when they buy their home, thanks to some of the highest property taxes in the country.



7. Oregon


  • Corporate Tax Rate Rank: 30th
  • Individual Income Tax Rank: 36th
  • Sales Tax Rank: 4th
  • Property Tax Rank: 17th
  • Unemployment Insurance Tax Rank: 37th

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 and comparatively low property taxes pushes the Beaver State into the top ten.



8. Utah


  • Corporate Tax Rate Rank: 5th
  • Individual Income Tax Rank: 10th
  • Sales Tax Rank: 16th
  • Property Tax Rank: 3rd
  • Unemployment Insurance Tax Rank: 16th

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. 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. Nevada


  • Corporate Tax Rate Rank: 33rd
  • Individual Income Tax Rank: 5th
  • Sales Tax Rank: 40th
  • Property Tax Rank: 8th
  • Unemployment Insurance Tax Rank: 45th

A sizable chunk of Nevada's revenue comes from taxes on gambling and high sales tax. In return, the Silver State doesn't collect any individual income taxes and their property taxes are some of the lowest in the United States.



10. Indiana


  • Corporate Tax Rate Rank: 18th
  • Individual Income Tax Rank: 15th
  • Sales Tax Rank: 12th
  • Property Tax Rank: 2nd
  • Unemployment Insurance Tax Rank: 11th

Indiana is another state that draws its economic strength from taxes that are consistently low across the board. The Hoosier State is further strengthened by a business climate that a separate study proved to be one of the country's most hospitable for racial and ethnic minorities.





10 Worst States to Form an LLC or Corporation


41. Vermont


  • Corporate Tax Rate Rank: 38th
  • Individual Income Tax Rank: 37th
  • Sales Tax Rank: 15th
  • Property Tax Rank: 49th
  • Unemployment Insurance Tax Rank: 20th

The taxes on actual business transactions and hiring are moderate in Vermont, with above-average rankings for sales taxes and unemployment insurance. But the price is paid when profits start coming in, via high rates for individual and corporate income, along with property taxes.



42. Ohio


  • Corporate Tax Rate Rank: 46th
  • Individual Income Tax Rank: 44th
  • Sales Tax Rank: 28th
  • Property Tax Rank: 13th
  • Unemployment Insurance Tax Rank: 6th

Despite securing the #6 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. The Buckeye State ranks near the bottom for it's combination of individual income tax, state sales tax, county tax, and speciality tax.



43. Minnesota


  • Corporate Tax Rate Rank: 42nd
  • Individual Income Tax Rank: 46th
  • Sales Tax Rank: 27th
  • Property Tax Rank: 31st
  • Unemployment Insurance Tax Rank: 25th

Minnesota's corporate and individual income tax rates are higher than all but a few states, and there are no offsetting areas of strength to make up for this.



44. Louisiana


  • Corporate Tax Rate Rank: 36th
  • Individual Income Tax Rank: 32nd
  • Sales Tax Rank: 50th
  • Property Tax Rank: 32nd
  • Unemployment Insurance Tax Rank: 4th

The Pelican State has the highest combined average state and local sales tax rate in the country, coming in 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 34th in 2015 to 42nd last year and now to 44th.



45. Iowa


  • Corporate Tax Rate Rank: 48th
  • Individual Income Tax Rank: 42nd
  • Sales Tax Rank: 19th
  • Property Tax Rank: 39th
  • Unemployment Insurance Tax Rank: 33rd

The Hawkeye State offers relatively low sales taxes, but the tax costs involved in setting up shop and then on actual profits make it difficult to execute enough sales transactions to make this a healthy business climate.



46. Arkansas


  • Corporate Tax Rate Rank: 40th
  • Individual Income Tax Rank: 40th
  • Sales Tax Rank: 44th
  • Property Tax Rank: 26th
  • Unemployment Insurance Tax Rank: 34th

When you tax transactions, along with individual and corporate income at very high rates, it's tough to become an attractive business climate. Arkansas doesn't help matters with moderately high property taxes and unemployment insurance taxes on top of it.




  • Corporate Tax Rate Rank: 29th
  • Individual Income Tax Rank: 43rd
  • Sales Tax Rank: 30th
  • Property Tax Rank: 50th
  • Unemployment Insurance Tax Rank: 23rd

Connecticut could be an okay place to do business, but you wouldn't want to live thereā€”at least as defined by the highest-in-the-nation property taxes. The rest of the tax landscape is manageable, if not ideal, but the property tax burden is too much to overcome for many small business entrepreneurs.



48. New York


  • Corporate Tax Rate Rank: 7th
  • Individual Income Tax Rank: 48th
  • Sales Tax Rank: 42nd
  • Property Tax Rank: 47th
  • Unemployment Insurance Tax Rank: 31st

Although the Empire State actually ranks well in terms of corporate tax policies, New York has the third 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).




  • Corporate Tax Rate Rank: 31st
  • Individual Income Tax Rank: 49th
  • Sales Tax Rank: 43rd
  • Property Tax Rank: 14th
  • Unemployment Insurance Tax Rank: 17th

While California doesn't have a problem attracting large employers (Apple, Google, Hewlett-Packard, etc.), it's continually ranked near the bottom overall. On top of its high individual income tax, the state is rated 31st for its corporate tax policy. The Golden State's sales tax rank plummeted over the last two years due to a sizable increase in the cigarette tax.




  • Corporate Tax Rate Rank: 47th
  • Individual Income Tax Rank: 50th
  • Sales Tax Rank: 45th
  • Property Tax Rank: 48th
  • Unemployment Insurance Tax Rank: 32nd

New Jersey once 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 so-called Garden State has taken last place every year since 2015, ironically making it a pretty tough place to grow a small business.



Where Does Your State Rank?

Check out the accompanying chart. Keep in mind that when you see duplicate numbers (i.e., the first four states all ranking first in individual income 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

38

36

2. Alaska

25

1

5

23

35

3. South Dakota

1

1

33

28

39

4. Florida

6

1

22

11

2

5. Montana

12

22

3

10

21

6. New Hampshire

45

9

1

44

44

7. Oregon

30

38

4

17

37

8. Utah

5

10

16

3

16

9. Nevada

33

5

40

8

45

10. Indiana

18

15

12

2

11

11. Delaware

50

41

2

9

23

12. North Carolina

3

16

20

33

7

13. Michigan

11

12

11

22

49

14. Missouri

4

25

25

7

8

15. Texas

49

6

37

37

18

16. Tennessee

24

8

46

29

22

17. North Dakota

23

20

32

6

14

18. Colorado

16

14

38

12

40

19. West Virginia

13

28

17

18

30

20. Washington

44

6

49

25

19

21. Idaho

26

23

26

4

48

22. Virginia

10

35

10

30

43

23. Kentucky

27

17

14

35

47

24. Nebraska

28

26

9

40

9

25. New Mexico

21

31

41

1

10

26. Oklahoma

9

33

39

19

1

27. Arizona

17

19

47

5

13

28. Kansas

34

21

31

20

15

29. Massachusetts

37

11

13

46

50

30. Maine

41

24

7

41

24

31. Mississippi

15

27

35

36

5

32. Wisconsin

35

39

8

21

41

33. Georgia

8

38

29

24

38

34. Pennsylvania

43

18

21

34

45

35. South Carolina

19

34

34

27

27

36. Illinois

39

13

36

45

42

37. Rhode Island

32

29

23

43

29

38. Hawaii

14

47

24

16

26

39. Alabama

20

30

48

15

12

40. Maryland

22

45

18

42

28

41. Vermont

38

37

15

49

20

42. Ohio

46

44

28

13

6

43. Minnesota

42

46

47

31

25

44. Louisiana

36

32

50

32

4

45. Iowa

48

42

19

39

33

46. Arkansas

40

40

44

26

34

47. Connecticut

29

43

30

50

23

48. New York

7

48

42

47

31

49. California

31

49

43

14

17

50. New Jersey

47

50

45

48

32

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, 2018 (the beginning of Fiscal Year 2018). Source: Tax Foundation


To read more about these results and how the study is conducted, visit the organization's web site at 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 with incorporating and satisfying 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.