Not all states are created equal when it comes to small business friendliness. One key component in assessing a state’s hospitality to small businesses is the tax policies of the state. Key questions include what kind of taxes does a state levy on small businesses and what kind of exemptions and/or deductions do they offer small businesses to encourage growth.
Not surprisingly, nearly all of the states in the top 10 on the Tax Foundation’s recently published 2015 State Business Tax Climate Index are lacking at least one type of tax that is levied in most other states (ie, a corporate tax, an income tax or a sales tax). Wyoming was rated as the state with the best business climate in 2015.
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Top 10 states with the best business tax climate
2. South Dakota
7. New Hampshire
Bottom 10 states with the worst business tax climate
45. Rhode Island
49. New York
50. New Jersey
Less tax good, more tax bad
The lack of at least one of the typical taxes is a common factor among almost all of the top ten states. Although every state has a property tax and an unemployment insurance tax, there are a number of states that do not have either a corporate tax, an individual income tax or a sales tax. For example, Wyoming, Nevada and South Dakota all have no corporate or individual income tax. Alaska does not levy an individual income tax or a state-level sales tax. Furthermore, Florida has no individual income tax, and New Hampshire and Montana have no sales tax.
Of note, some states that levy all the major taxes still rank in the top ten. Indiana and Utah have all the major tax types, but both states have low rates applied broadly.
The Tax Foundation notes that states in the bottom 10 of their list levy all types of taxes in a complex fashion with relatively high rates. “The states in the bottom ten suffer from…complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, and is one of just two states to levy both an inheritance and an estate tax.”