The 10 Most Tax-Friendly States for Businesses
Small businesses can make their mark and find a way to growth no matter what state(s) they operate in. However, some states do more to take the burden off entrepreneurs than others … via accommodative policies.
Every year, the Tax Foundation puts out its State Business Tax Climate Index, which “enables business leaders, government policymakers and taxpayers to gauge how their states’ tax systems compare.”
And while the most tax-friendly states for businesses don’t all have the exact same tax profile, there are at least a few common themes:
“The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax or the sales tax.”
The following is a look at America’s top tax-friendly states, and what makes them that way.
The Most Tax-Friendly States
10. Indiana
Indiana, according to the Tax Foundation, levies “all of the major tax types,” but does so “with low rates on broad bases.” Indiana ranks third-best in property tax and 12th in unemployment insurance tax.
The state could climb higher up the list in future years. The state’s House Bill 1001 not only reduced the individual income tax rate from 3.15% to 3.05% in 2024, but prescribed rate reductions that will reduce the rate further going forward (3.0% in 2025, 2.95% in 2026, and 2.9% in 2027).
9. North Carolina
North Carolina’s tax-friendliness has improved, so much so that it has become a regular on this list, and it improved from 10th in 2023 to 9th this year.
The Tar Heel State has the lowest corporate income tax rate among any state that actually levies one, at 2.5%. Also, its unemployment (sixth), property (12th), individual income (15th) and sales tax rates (20th) are all in the top half of rankings among all states.
8. Utah
Like with tax-friendly state Indiana, Utah levies every major tax type, but its overall rates are quite low. For instance, its top corporate income tax rate is just 4.65%, putting it at 14th overall. All other tax types are top-25 too, including property (eighth), individual income (11th), unemployment (17th) and sales tax (21%).
7. Nevada
Nevada stands out for its lack of corporate or individual income tax, though the state does impose gross receipts taxes. The state also boasts a strong property tax rank (fourth), with an average effective property tax rate of just 0.44%. The flip side? Nevada has high sales taxes and unemployment taxes, both of which rank 45th currently.
6. New Hampshire
New Hampshire is one of five states not to have a sales tax, and the first of three on this list of the most tax-friendly states. It also has a top-1o individual income tax rank (it levies a flat 3% tax on interest and dividends, but no income tax on wages and salaries). New Hampshire would be even higher on this list … if it weren’t for a high unemployment tax rate (40th), as well as bottom-10 ranks in property taxes (43%) and corporate taxes (44%).
5. Montana
Montana is another state without a sales tax, and thanks to a more tax-friendly environment across the board, it’s able to crack the top five. Property taxes (19th), unemployment taxes (22th) and corporate taxes (23th) are all in the top half of state rankings, though its moderate individual income tax sits at 28th.
4. Florida
Florida, which has no individual income tax, is also a generally tax-friendly state across all other categories. It has the fourth-best unemployment insurance rank, it’s 11th best in corporate taxes, and its property taxes (13th) and sales taxes (19th) are also in the top half of all states.
3. Alaska
Alaska has a strong 1-2 punch of no individual income tax or state-level sales tax. However, its corporate taxes (26th) and property taxes (27th) are middle-of-the-road. Its corporate taxes, for instance, range from between 0% to 9.4% in a system that includes 10 tax brackets.
2. South Dakota
South Dakota is one of two states with no corporate or individual income taxes, which more or less carries its overall ranking. Otherwise, its rankings for sales taxes (27th), property taxes (30th) and unemployment taxes (35th) are in the bottom half for those categories.
1. Wyoming
Wyoming remains firmly affixed atop this list thanks in large part to its lack of both corporate and individual income taxes. However, it’s also a juggernaut thanks to:
- A bottom-10 state sales tax rate of 4%, as well as a bottom-10 average combined state-and-local sales tax rate of 5.44% (indeed, many of the state’s cities and municipalities have no sales taxes)
- No inheritance tax
- No estate tax
Wyoming isn’t a perfect tax haven, however. You will pay an above-average rate on property taxes (34th), and a moderate rate on unemployment insurance taxes (24th).
Corporate Tax Rankings
Also, if you’re curious about the best corporate tax environments, here’s a quick look at the top 10 states by corporate tax rank:
10. North Dakota
9. Georgia
8. Mississippi
7. Colorado
6. South Carolina
5. North Carolina
4. Oklahoma
3. Missouri
1. South Dakota (tied)
1. Wyoming (tied)
Do You Have Tax Questions? Talk to Us Today!
If you’re curious about where your state ranks, visit the Tax Foundation’s post featuring the whole list.
And if you’re a small business looking to make the most of your specific tax situation, talk to McManamon & Co. We offer a wide range of tax services for small and midsize businesses, including federal/state/local taxes, payroll taxes and compliance services.
No matter what your state’s tax friendliness, it pays to maximize the breaks and deductions you’re entitled to. Give us a call at 440.892.9088 or contact us online, and we’ll get to work improving your small business’ tax situation.
Tags: McManamon, small business, small business taxes, tax news, taxes | Posted in McManamon & Co., small business, small business taxes, taxes