Switch On Business’s study has revealed the most and least expensive states to start a business in 2023.
- South Dakota ranks as the cheapest state to start a business with 0% corporate tax and affordable office rentals.
- Massachusetts is the least cost-effective state, with high LLC fees and a corporate tax rate of 8%
- Best industry for success: 94% of health care and social assistance startups established in 2019 are still in business
Q4 2022 hedge fund letters, conferences and more
The cost of starting a business can be a major concern for many aspiring entrepreneurs, especially when considering the rising cost of living in today's world. With so many factors to consider, it can be quite a challenge for new business owners to decide where to launch their startups.
Switch On Business has explored the most and least expensive states to start a business, based on key factors such as the corporate income tax rate, average cost of renting serviced offices, and the average living wage.
South Dakota Ranks As The Cheapest State To Launch A Startup
South Dakota ranks number one overall as the cheapest state to launch a startup. It’s one of the six US states that doesn’t impose a corporate income tax as well as having the lowest living wage in the country at $14.85 per hour, so entrepreneurs can make savings on labor expenses.
Business owners will also find affordable workspaces in South Dakota with the average rent for a serviced office being just $249.00, and it costs just $150 to register an LLC.
Mississippi follows closely in second place. Switch On Business’s study found that a fully serviced office space here costs around $96.50 per month on average, and filing an LLC costs just $52 (almost a third of what it costs in South Dakota). However, unlike South Dakota’s absence of a corporate tax rate, Mississippi's corporate tax rate stands at 4.5%.
Arkansas earns third place with the cheapest LLC filing fee in all of America, at just $45. Entrepreneurs should also be able to find skilled employees to run the business while keeping labor costs down with the state living wage set at just $15.55 per hour.
These are the top 5 most cost effective states to launch a startup:
| Rank | US State | Corporate tax rate (%) | LLC filing fee ($) | Average monthly price for serviced office space ($) | Living Wage - Annually ($) | Number of other SMEs being set up per 1000 people |
| 1 | South Dakota | 0% | $150 | $249.00 | $30,888 | 11.02 |
| 2 | Mississippi | 4.50% | $52 | $96.50 | $32,573 | 22.34 |
| 3 | Arkansas | 3.38% | $45 | $207.50 | $32,344 | 13.61 |
| 4 | Wyoming | 0% | $102 | n/a | $31,720 | 57.73 |
| 5 | Ohio | 0% | $99 | $605.70 | $32,469 | 13.03 |
Massachusetts Is The Least Cost-Effective State For A Start Up Business
The study reveals Massachusetts is the least cost-effective state to launch a startup. Filing an LLC is more expensive there than in any other state ($520), and employing staff could be another significant costly resource due to the $21.88 per hour state living wage. On top of this, Massachusetts’ corporate tax rate is set at 8%.
New York ranks second from the bottom. Unsurprisingly, renting an office in New York is more expensive than in any other state with the monthly rent for a serviced office space averaging $1,466 per month. Entrepreneurs will also need to pay their employees more due to the high living wage ($21.99 per hour) and businesses are taxed at a rate of 6.88%.
New Jersey follows just behind New York. Corporate tax is levied at 8.63% but it only costs $130 to file an LLC. Also, the average cost to rent a serviced office space is $1,314.17 ($152 cheaper than across the Hudson River in New York).
These are the bottom 5 least cost effective states to launch a startup:
| Rank | US State | Corporate tax rate (%) | LLC filing fee ($) | Average monthly price for serviced office space ($) | Living Wage - Annually ($) | Number of other SMEs being set up per 1000 people |
| 1 | Massachusetts | 8.00% | $520 | $448.50 | $45,510 | 10.51 |
| 2 | New York | 6.88% | $200 | $1,466.30 | $45,739 | 15.12 |
| 3 | New Jersey | 8.63% | $130 | $1,314.17 | $42,786 | 17.23 |
| 4 | California | 8.84% | $70 | $676.30 | $45,386 | 12.88 |
| 5 | Minnesota | 9.80% | $155 | $628.70 | $36,899 | 11.09 |
Despite the challenges posed by the pandemic, 93.9% of the health care and social assistance businesses established in 2019 are still in operation today, making it the most successful sector for startups launched in the past three years.
While some sectors have thrived over the past three years, others have struggled, but none more than the mining, quarrying, and oil and gas extraction industry. More than half (55.9%) of the startups launched in 2019 within this field have stopped trading, and this could potentially be attributed in part to climate change concerns.
