If you're starting a small business, it's smart to consider the business taxes in the state where your company is operating. But how can you determine the best business taxes by state for entrepreneurs? Which ones have the worst? And which is the best state for an LLC in the first place?
As Raymond J. Keating, chief economist for SBE Council and author of the report, explains: “In the end, if the state’s tax burden is light on economic risk taking, then that will be good news for entrepreneurship, businesses, investment, economic and income growth, and job creation in each state.”
The 2017 Small Business & Entrepreneurship Council’s latest Small Business Tax Index, released in June 2017, ranks the costs of these tax systems and business taxes by state. This index compiles 26 different tax measures and combines them into a single tax score. It includes various types of taxes that may be relevant, such as capital gains, income, unemployment, death, gas, diesel, wireless and property.
In this list, we've included a few of the 26 different tax measures that would be of most interest to entrepreneurs. The states that ranked highest for business taxes had no or very low corporate income taxes, individual personal gains taxes, dividends and interest tax rates, and corporate gains taxes. Because the taxes were far lower, businesses could enjoy a lighter tax burden and invest their profits toward growing their company. Conversely, those with high taxes were ranked the lowest. That's because higher taxes would eat into their bottom line.
Based on the index, here are the best and worst business taxes by state:
Best States for Business Taxes
1. Nevada
Top Individual Personal Gains Tax Rate: 0.000
Top Dividends and Interest Tax Rate: 0.000
Top Corporate Income Tax Rate: 0.000
Top Corporate Gains Tax Rate: 0.000
Added S Corp Rate: 0.000
Property Taxes: 2.376
2. Texas
Top Personal Income Rate: 0.000
Top Individual Personal Gains Tax Rate: 0.000
Top Dividends and Interest Tax Rate: 0.000
Top Corporate Income Tax Rate: 0.000
Top Corporate Gains Tax Rate: 0.000
Added S Corp Rate: 0.000
Property Taxes: 3.602
3. South Dakota
Top Personal Income Rate: 0.000
Top Individual Personal Gains Tax Rate: 0.000
Top Dividends and Interest Tax Rate: 0.000
Top Corporate Income Tax Rate: 0.000
Top Corporate Gains Tax Rate: 0.000
Added S Corp Rate: 0.000
Property Taxes: 2.808
4. Wyoming
Top Personal Income Rate: 0.000
Top Individual Personal Gains Tax Rate: 0.000
Top Dividends and Interest Tax Rate: 0.000
Top Corporate Income Tax Rate: 0.000
Top Corporate Gains Tax Rate: 0.000
Added S Corp Rate: 0.000
Property Taxes: 3.848
5. Washington
Top Personal Income Rate: 0.000
Top Individual Personal Gains Tax Rate: 0.000
Top Dividends and Interest Tax Rate: 0.000
Top Corporate Income Tax Rate: 0.000
Top Corporate Gains Tax Rate: 0.000
Added S Corp Rate: 0.000
Property Taxes: 2.751
Worst States for Business Taxes
1. California
Top Personal Income Rate: 13.300
Top Individual Personal Gains Tax Rate: 13.300
Top Dividends and Interest Tax Rate: 13.300
Top Corporate Income Tax Rate: 8.840
Top Corporate Gains Tax Rate: 8.840
Added S Corp Rate: 1.500
Property Taxes: 2.763
2. New Jersey
Top Personal Income Rate: 8.970
Top Individual Personal Gains Tax Rate: 8.970
Top Dividends and Interest Tax Rate: 8.970
Top Corporate Income Tax Rate: 9.000
Top Corporate Gains Tax Rate: 9.000
Added S Corp Rate: 0.000
Property Taxes: 5.395
3. Maine
Top Personal Income Rate: 10.150
Top Individual Personal Gains Tax Rate: 10.150
Top Dividends and Interest Tax Rate: 10.150
Top Corporate Income Tax Rate: 8.930
Top Corporate Gains Tax Rate: 8.930
Added S Corp Rate: 0.000
Property Taxes: 4.560
4. Minnesota
Top Personal Income Rate: 9.850
Top Individual Personal Gains Tax Rate: 9.850
Top Dividends and Interest Tax Rate: 9.850
Top Corporate Income Tax Rate: 9.800
Top Corporate Gains Tax Rate: 9.800
Added S Corp Rate: 0.000
Property Taxes: 2.896
5. Iowa
Top Personal Income Rate: 5.424
Top Individual Personal Gains Tax Rate: 7.184
Top Dividends and Interest Tax Rate: 7.184
Top Corporate Income Tax Rate: 9.900
Top Corporate Gains Tax Rate: 9.900
Added S Corp Rate: 0.000
Property Taxes: 3.384
Are you ready to start a business, form an LLC or reorganize your business structure for a more sustainable future? Talk to Incfile today. Our incorporation experts can help you evaluate your options with state-specific advice.
