The Best and Worst States to Start a Business

Starting a business is seldom completely effortless, but depending on where you’re located, it could be a whole lot easier — or harder — than you think.  In this week’s blog entry, our commercial litigation attorneys take a look at some of the best and worst states to start a business.


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Best States to Start a Business

When the recession began gripping the nation in the middle of the ’00s, the financial toll on the business sector was widespread and almost overwhelmingly negative.  The recession, which continues to plague America in 2014, has impacted everything from buying power to job openings to applying for loans.  Nonetheless, like hardy plants sticking it out in the baking desert, some states have managed to thrive even amid these harsh conditions.

According to the 2014 State Business Tax Climate Index, published by the Tax Foundation, the top five states with the lowest business taxes are:

5. Florida
4. Alaska
3. Nevada
2. South Dakota
1. Wyoming

In Wyoming, South Dakota, and Nevada — respectively gold, silver, and bronze in the Business Tax Olympics — the total absence of both corporate and individual income tax makes launching a company considerably less expensive than in some of the worst states… but we’ll get to those later.

Of course, taxes aren’t the only measure of what makes a local economy more or less receptive to fostering a new enterprise.  According to the 2013 Small Business Survey, conducted by in partnership with the Kauffman Foundation, states are assigned letter grades based on a variables such as zoning laws, environmental regulations, and even the availability of professional networking resources.  In terms of “Overall Friendliness,” A+ ranked states were:

  • Alabama
  • Idaho
  • New Hampshire
  • Utah

Entrepreneurs in the service industry, take note.

Meanwhile, the best states to launch based on “Availability of Training and Networking Programs” were:

  • Idaho
  • Iowa
  • Nebraska
  • Oregon

Interestingly enough, while Idaho only ranks #18 on the State Business Tax Climate Index, “the Potato State” scores yet another A+ from the Small Business Survey from a taxation standpoint.

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Worst States to Start a Business

We’ve looked at the best… and now, unfortunately, it’s time to dig into the worst.

For the sake of fairness, we’ve used the same studies and variables to pit the states against each other, starting with the Tax Climate Index.  In stark contrast against the top five best, the Index ranks the bottom five worst states for business tax as:

5. (#46) Rhode Island
4. (#47) Minnesota
3. (#48) California
2. (#49) New Jersey
1. (#50) New York

That’s right — none other than neighboring New Jersey has been ranked as the #2 worst state in the nation to start a business based on the tax climate.  Part of the reason for this extremely low ranking is the Garden State’s notoriously complex tax system, which suffers from extremely high rates, including:

  • 5.34% on property tax
  • 8.97% on personal income

But what did the Small Business Survey think?  States which received an F score for “Overall Friendliness” were: 

  • Hawaii
  • Maine
  • Rhode Island (which also scored in the bottom five for tax climate)

Yes, we thought Hawaii was renowned for its welcoming attitude, too.

What about F-grade states for “Availability of Training and Networking Programs”?  Avoid:

  • Arkansas
  • New Mexico

Let’s put the comparison to one final test.  Again, we’ve used the Small Business Survey — but this time, we’re looking at the rankings specifically for the “Ease of Starting a Business” factor, the most telling of all.

The very best (A+)?

  • Idaho
  • New Hampshire
  • New Mexico
  • Utah

The very worst (F)? 

  • Hawaii
  • New York
  • Rhode Island

If your state ranked poorly this time around, take heart — the statistics fluctuate every year. (And no matter where you live, there’s always an airport somewhere.)

To speak with an experienced business attorney about starting a corporation, partnership, or LLC, call the law offices of Berkowitz Klein at (610) 889-3200 (ext. 1), or contact us online.