Having a successful business often relies a considerable bit on the location that you decide to open that business. As you can imagine, not all states in the US are created equal.
Choosing where you will open up shop is usually one of the first and most crucial decisions you will make for your small business. To make your small business successful, you will need a favorable and stable economic environment as well as the ability to attract and retain high-caliber employees and customers. State taxes are also a crucial factor.
The decision to choose a specific state will affect the amount of taxes you pay on your corporate earnings. Where will your small business pay the least amount of tax?
It is worth mentioning that regardless of whether you’re just starting a business, thinking of relocating or expanding, this is one of the most important considerations. This is because the amount of state, as well as local taxes that your business pays each year, is likely to have a big impact on your small business's profit or bottom line. This is why it’s vital to know the kind of tax burden that your business is facing when you launch your small business organization.
Some states and cities in the US are comparatively friendlier than others when it comes to corporate tax liability. Some states in the country tack on substantial tax responsibilities for small businesses, including high tax rates and complicated tax laws. On the other hand, tax-friendly states get their names as their tax systems are more appealing to small business owners.
Here are some of the best states in terms of tax liabilities if you are looking to start a small business.
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Wyoming
Wyoming has had the most attractive tax climate for small business owners in the nation. This is because the state charges no corporate and individual income tax. Wyoming also tied equally with six other states for excellent individual income tax policy in the country. In addition, Wyoming is one of just 3 states in the US, along with South Dakota and Nevada, with no corporate tax or a gross receipts tax, making it ideal for small business owners. If you want to keep your tax expense to a minimum, you should go for Wyoming.
It is no secret that the state of Wyoming has to get the money from somewhere, and Wyoming does that through sales taxes. However, you don’t have to worry as the rate of sales tax in the state is low, at just 4.0%.
Another reason why the state tops our tax-friendly list is that generous revenues from energy and mineral extraction continue flowing into the state. And that allows this Equality State to keep taxes on its residents low.
Alaska
The state of Alaska has no sales tax and individual income tax, which is perfect for small business owners looking to set up shop. This is why we gave the state the number 2 spot on our list. You will have plenty of talent to choose from if you start your business in the state and hire employees to grow your business.
South Dakota
The state has no corporate income tax or individual income tax, making it ideal for small business owners. South Dakota is great as it also doesn’t impose a gross receipts tax and provides plenty of opportunities for small business owners and entrepreneurs looking to launch a new business in the US. The reason it is on number three on our list, however, is because the state does charge a sales tax of 4.5%. Also, keep in mind that some cities in the state can set their rates to 2% above state rates, as well.
With respect to market, cost of living, quality of life, and easy access to funds, South Dakota is average. Its startup costs, however, are low, which makes it an excellent place to start a new business. Business survivability is also high in the state.
Florida
The great thing about Florida is that it does not levy an individual income tax. This makes it great for sole proprietors, LLC members, and members of a partnership. Corporate taxes are also modest in the state. Florida also offers a host of other advantages to most small business owners.
Compared to many other states in the US, small business regulations and laws in Florida are minimal. In addition, the state imposes very few barriers to entry for new business owners.
Montana
The state offers taxpayers a relatively low corporate tax rate, low individual income tax rates, and no sales tax, making it great for small business owners. And that is not all as Montana is a great state for setting up shop because of the low cost of starting a small business, the strong and stable labor market as well as the ease of with which small business owners in the state may access capital.
New Hampshire
While the state has a slightly higher corporate tax burden (8.5%) than other states, New Hampshire doesn’t have a sales tax. The overall economic climate of the state is also good, which makes it ideal for small business owners.
New Hampshire is also home to Portsmouth—a vibrant and lively community along the nice Piscataqua River, just across from Maine.
If you are looking to start a business in the state, keep in mind that New Hampshire has a fairly high percentage of timberland, which means that logging and paper industries are very popular.
Nevada
This is another good option. Nevada had the 2nd highest business birth rate from 2016 to 2018, and it had one of the lowest tax burdens as well. The state has no individual income tax on dividends, earnings, or interest, which is great. It’s also one of only three states in the country that have no corporate income and gross receipts tax.
Bottom Line
Each of the above states is characterized by differing tax climates, labor market, qualities and costs of living, costs of starting a business, startup activity and access to capital. Keep your business needs and preferences in mind when choosing a location for your small business. Our Halon Private Client Service can give you the support you need to make sure you are getting your LLC or S Corp started correctly.
