How the 50 states tax small businesses

Running a small business can be extremely difficult in the best of times and downright impossible in the worst. So, in the event that your hard work and toil actually result in a profitable business, it can be especially galling when the tax man comes calling, asking for you to fork over the previous profits that you worked so hard to acquire.

However, depending on where you operate, that small-business tax burden can vary quite a bit. And although there are usually a lot of factors other than just the state tax burden dictating where you would open a business, it can still be an important factor that might ultimately be the difference between success and failure.

Fortunately, the Tax Foundation — a think tank focused on issues surrounding taxation — created a definitive ranking of every state based on its business tax structure with the 2019 State Business Tax Climate Index. That ranking, though, digs deeper into tax policy to provide a broader judgment of how each state is collecting its taxes. As such, simply having lower rates won’t necessarily result in a better ranking if it’s part of an otherwise flawed tax code. Take a closer look at how each state in the country is taxing businesses and how that affects the quality of the business environment there.

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How the 50 States Tax Small Businesses
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How the 50 States Tax Small Businesses

Alabama

Top Corporate Income Tax Rate: 6.5%

Alabama is among the top 15 states for its business property tax and unemployment insurance tax ranks, and its corporate tax rate is still among the top half of states for being relatively tax friendly. The state’s corporate taxes are a flat 6.5 percent rate across the board.

Alaska

Top Corporate Income Tax Rate: 9.4%

Alaska has one of the most progressive corporate tax brackets, with 10 different rates on business earnings that range all the way up to 9.4 percent on earnings over $222,000. So, although that top rate is among the highest in the study, Alaska ranked 25th for corporate taxes because of the lower rates on those with lower earnings.

Arizona

Top Corporate Income Tax Rate: 4.9%

Arizona is a relatively tax-friendly state on the whole, but it’s especially business friendly when it comes to business property taxes. The Tax Foundation ranked it fifth overall for this category.

Arkansas

Top Corporate Income Tax Rate: 6.5%

Arkansas is one state that doesn’t appear to be especially business-friendly if you’re focused solely on its tax code. Although the state ranks out of the top half of the United States for business property taxes and unemployment insurance taxes, it’s the state’s corporate tax rate that appears especially burdensome, landing just outside the bottom 10 states.

California

Top Corporate Income Tax Rate: 8.84%

California — home to Silicon Valley — appears to be doing a lot to take advantage of the business climate to pay for public services, with a top corporate tax rate just under 9 percent and corporate taxes that rank in the bottom half of states. However, it’s not all bad for California businesses with business property taxes and unemployment insurance taxes that rank among the top 20 states.

Colorado

Top Corporate Income Tax Rate: 4.63%

Colorado’s top corporate tax rate of just 4.63 percent is part of why it ranks among the top 20 states in the category, and it’s also among the top 20 states for business property taxes as well. But before you start looking for space in Boulder or Aspen, know that the state ranks just outside the bottom 10 for its unemployment insurance taxes.

Connecticut

Top Corporate Income Tax Rate: 8.25%

Connecticut’s top corporate tax rate of over 8 percent is relatively steep, but that’s not actually where the Tax Foundation sees the biggest source of griping for business owners: The state ranked dead last for its business property taxes.

Delaware

Top Corporate Income Tax Rate: 8.7%

More than half of the Fortune 500 is registered in Delaware to take advantage of a host of laws that make it advantageous to incorporate there, but it appears as though Delaware is also trying to take advantage of having so much of America’s corporate structure ostensibly doing business there. With a flat 8.7 percent rate across the board, Delaware ranks dead last for its corporate income tax structure.

District of Columbia

Top Corporate Income Tax Rate: 8.25%

Washington, D.C.’s 8.25 percent flat tax on business profits is among the higher rates, but other factors helped drag its ranking in that category up closer to the median state. However, it’s business property taxes rank among the bottom five states.

Florida

Top Corporate Income Tax Rate: 5.5%

Florida is one state that appears to be doing very well as far as using its tax code to create the most friendly business environment possible. Ranking second overall, Florida is especially strong in the corporate tax category and the unemployment insurance tax category, ranking sixth and second, respectively.

Georgia

Top Corporate Income Tax Rate: 5.75%

Georgia is neither especially good nor especially bad when it comes to business property taxes or unemployment insurance taxes, but it stands out for its corporate tax rate. With a flat 5.75 percent rate across the board, the state ranks eighth overall in the category.

Hawaii

Top Corporate Income Tax Rate: 6.4%

Hawaii is well-known as one of the most expensive states to live in, but that doesn’t necessarily extend to its business taxes. The state ranks among the top 20 states for both its corporate taxes and its business property taxes.

Idaho

Top Corporate Income Tax Rate: 7.4%

Idaho ranks third-worst for its unemployment insurance taxes and in the bottom half of states for its corporate taxes, but that’s tempered by business property taxes that ranked fourth overall.

Illinois

Top Corporate Income Tax Rate: 9.5%

Based on taxes alone, Illinois is not the friendliest place to open a small business. Ranking in the bottom 10 for business property taxes and unemployment insurance taxes, it’s also just outside the bottom 10 in corporate taxes. That top tax rate of 9.5 percent is the third-highest in the country, and it’s also a flat tax, so it hits all business profits across the board.

Indiana

Top Corporate Income Tax Rate: 6%

Indiana has a relatively low-impact tax environment, ranking relatively well for corporate and unemployment insurance taxes. But it’s the business property taxes that are especially supportive as the Hoosier State ranks second overall for that category.

Iowa

Top Corporate Income Tax Rate: 12%

Iowa’s 12 percent top corporate tax rate is the highest of any state in the country. And although that top rate only applies to profits over $250,000, the tax bracket still starts at 6 percent and jumps up to 8 percent after the first $25,000, all contributing to the state ranking third-worst for its corporate taxes.

Kansas

Top Corporate Income Tax Rate: 7%

Kansas is among the top 20 states for business property and unemployment insurance taxes, but its corporate taxes — 7 percent on profits over $50,000, 4 percent for the rest — rank in the bottom half of the country.

Kentucky

Top Corporate Income Tax Rate: 6%

Kentucky is right in the middle of the pack for its corporate taxes, which charge 4 percent on profits up to $50,000 a year, 5 percent on profits over $50,000 and under $100,000 and 6 percent for anything over that. However, it ranks fourth-worst for its unemployment insurance taxes and in the bottom half of states for its business property tax.

Louisiana

Top Corporate Income Tax Rate: 8%

Although Louisiana’s tax structures for corporate taxes and business property taxes don’t rate as being especially competitive, it has one of the top-ranked unemployment insurance tax systems, landing the No. 4 spot overall in that category.

Maine

Top Corporate Income Tax Rate: 8.93%

Maine has some unusually specific tax brackets for its corporate income taxes. The top rate of 8.93 percent kicks in at profits in excess of $250,000, but that only adds 0.6 percentage points to the 8.33 percent rate on income over $75,000. Regardless of why the top rate is 8.93 percent and not just 9 percent, the state ranks among the 10 worst for its corporate taxes and its business property taxes.

Maryland

Top Corporate Income Tax Rate: 8.25%

Maryland is right in the middle of the pack for its corporate tax and unemployment insurance tax rankings, though its top corporate rate of 8.25 percent is higher than most. That said, it’s among the 10 worst states for business property taxes.

Massachusetts

Top Corporate Income Tax Rate: 8%

For a state that’s often nicknamed “Taxachusetts,” Massachusetts might actually be doing OK in terms of its corporate taxes, which “only” rank as the 14th-worst in the country. That said, it’s earning the title elsewhere, with the worst-ranked unemployment insurance taxes and fifth-worst business property taxes.

Michigan

Top Corporate Income Tax Rate: 6%

The Great Lakes State has really run the gamut in terms of its rankings for the three types of business taxes considered here. Its corporate income taxes — a flat 6 percent rate across the board — rank 11th overall. Business property taxes rank 22nd overall, putting them right near the median. And finally, the state ranks second-worst for its unemployment insurance taxes, just one spot ahead of “Taxachusetts.”

Minnesota

Top Corporate Income Tax Rate: 9.8%

Minnesota’s top corporate tax rate of 9.8 percent is the third-highest in the study, and its impact isn’t lessened for less-profitable businesses as it’s a flat tax on all business earnings. As such, it shouldn’t come as a big surprise that the state ranks among the 10 worst states for that category.

Mississippi

Top Corporate Income Tax Rate: 5%

Mississippi has four different tax brackets for corporate income, but they’re all on under $10,000 in annual profit. That 5 percent top rate likely helped Mississippi land its top-15 spot in the rankings for corporate taxes, but the real gem for the state would be its top-five spot for unemployment insurance taxes.

Missouri

Top Corporate Income Tax Rate: 4%

There might be no better state in the country to open a small business if your primary goal is avoiding taxes. The Show Me State ranks in the top 10 for all three of the categories included in this study.

Montana

Top Corporate Income Tax Rate: 6.75%

Montana’s taxation climate includes a flat 6.75 percent tax rate on all corporate earnings, helping it rank among the top 15 states for that category. It also ranked among the top 10 states for its business property taxes.

Nebraska

Top Corporate Income Tax Rate: 7.81%

The Cornhusker State ranks just outside the bottom 10 for its business property taxes, just inside the top 10 for its unemployment insurance taxes and right in the middle for its corporate incomes taxes. And although the state doesn’t have a flat tax on corporate earnings, it’s very close: The 7.81 percent rate applies to earnings over $100,000 a year and everything under that is taxed at 5.58 percent.

Nevada

Top Corporate Income Tax Rate: 0%

Nevada’s rank for corporate taxes — 33rd overall — has to seem especially curious given that it doesn’t actually charge any tax on corporate income. But that’s because Nevada has opted to tax corporate revenues instead of profits — a move that’s supposed to reflect how widely profit margins can vary from one industry to another — with a commerce tax on gross receipts over $4 million. The rates vary from 0.05 percent to 3.3 percent depending on which of 26 different categories the business falls into.

New Hampshire

Top Corporate Income Tax Rate: 7.7%

The Granite State might claim “live free or die” as its motto, but plenty of local business owners might be chaffing at the relative lack of freedom in the tax code. The state ranked in the bottom 10 for its corporate taxes, business property taxes and unemployment insurance taxes.

New Jersey

Top Corporate Income Tax Rate: 9%

New Jersey is the country’s most-taxed state in terms of its personal taxes. And although it doesn’t quite land there for its business taxes, it doesn’t miss by much. New Jersey ranked among the bottom five for both corporate taxes and business property taxes.

New Mexico

Top Corporate Income Tax Rate: 5.9%

New Mexico holds the top spot for its business property taxes, beating out the other 49 states and Washington, D.C. What’s more, it landed in the top 10 for its rank on unemployment insurance taxes.

New York

Top Corporate Income Tax Rate: 6.5%

Although ranking among the five worst states for how it’s charging its business property taxes, New York’s corporate income taxes are among the best, according to the Tax Foundation. The state’s flat 6.5 percent on all business income ranked No. 7 overall in the category.

North Carolina

Top Corporate Income Tax Rate: 2.5%

North Carolina’s flat 2.5 percent rate on all business income ranked as especially well-structured, placing third overall. And that’s in addition to unemployment insurance taxes that ranked among the top 10.

North Dakota

Top Corporate Income Tax Rate: 4.31%

North Dakota did reasonably well across the board, but its strongest category was for its business property tax. There, the state ranked among the top 10 states.

Ohio

Top Corporate Income Tax Rate: 0%

Like Nevada, Ohio has no tax on corporate income because it’s opted to tax total revenue instead. The state taxes gross receipts over $1 million at a rate of 0.26 percent. And although this approach might have its own set of benefits, the Tax Foundation clearly sees more downsides as Ohio ranked as the fifth-worst corporate tax system in the country.

Oklahoma

Top Corporate Income Tax Rate: 6%

Although Oklahoma has a 6 percent flat tax on corporate incomes, it ranks among the top 10 states for the category. However, business owners in the Sooner State might be even more excited about the system for unemployment insurance taxes, where the state ranks first.

Oregon

Top Corporate Income Tax Rate: 7.6%

None of Oregon’s rankings stand out in a big way, but it does appear to fall on the tougher side of the spectrum for its business tax environment. Both the corporate taxes and unemployment insurance taxes are among the bottom 20 states.

Pennsylvania

Top Corporate Income Tax Rate: 9.99%

With the second-highest top corporate tax rate that comes in just a hair under 10 percent and the fact that it’s a flat tax on all profits, it shouldn’t be a huge surprise that the state ranked among the worst 10 states for that category. However, that’s not the worst ranking for the state: The Tax Foundation found its unemployment insurance taxes to be the fifth-worst in the country.

Rhode Island

Top Corporate Income Tax Rate: 7%

The smallest state in the country has business taxes that are anything but. Rhode Island charges a flat 7 percent on all corporate profits along with a business property tax system that ranks among the 10 worst in the country.

South Carolina

Top Corporate Income Tax Rate: 5%

South Carolina runs right in the middle of the pack for its business property taxes and unemployment insurance taxes, ranking 27th in both categories. However, its flat 5 percent tax on corporate profits does a little better, ranking 19th overall for the category.

South Dakota

Top Corporate Income Tax Rate: 0%

In South Dakota, you have the top-ranked state for corporate income taxes in the country, according to the Tax Foundation. With no taxes on corporate profits and no commerce tax on revenues like in Nevada or Ohio, doing business in South Dakota comes with some distinct tax advantages.

Tennessee

Top Corporate Income Tax Rate: 6.5%

Tennessee offers up nothing especially significant with its business tax environment, ranking in the middle 10 states for each of the three categories included here. Much like nearby Alabama, it charges a flat 6.5 percent tax on any corporate profits.

Texas

Top Corporate Income Tax Rate: 0%

It’s interesting to note that of the six states with no tax on corporate income, two are tied for the top ranking in the category while three others all fall within the bottom 10 states, including Texas that rated second-to-last ahead of just Delaware. That’s because Texas has deployed a complicated margin tax since 2008 that taxes some combination of gross receipts and profits, which is out of favor for the Tax Foundation.

Utah

Top Corporate Income Tax Rate: 5%

Utah’s flat 5 percent rate on corporate earnings lands it among the top five states for corporate taxes in the Tax Foundation’s rankings. What’s more, it clocked the third-best overall structure for its business property taxes in the index.

Virginia

Top Corporate Income Tax Rate: 6%

Virginia’s flat 6 percent rate on corporate profits helped land it the 10th overall spot for that category, but business owners there might have some other reasons to gripe. The unemployment insurance tax is among the 10 worst in the country.

Vermont

Top Corporate Income Tax Rate: 8.5%

The Green Mountain State takes a relatively big bite from corporate profits — 8.5 percent on everything over $25,000, 7 percent between $10,000 and $25,000 and 6 percent on everything under that — so it ranking just outside the bottom 10 states for corporate income taxes isn’t such a surprise.

Washington

Top Corporate Income Tax Rate: 0%

The third and final state to offer no tax on corporate profits but still rank in the bottom 10 for the category, Washington’s business and occupation tax results in the same stuff getting taxed multiple times throughout the supply change — what’s known as tax pyramiding. As such, its corporate tax system ranked the seventh-worst.

West Virginia

Top Corporate Income Tax Rate: 6.5%

West Virginia ranks in the top 20 states for both its corporate income tax and its business property tax. It loses ground, though, when you consider the unemployment insurance tax, which ranks just outside the bottom 20 states.

Wisconsin

Top Corporate Income Tax Rate: 7.9%

Wisconsin’s flat 7.9 percent tax on corporate earnings was ranked 35th overall by the Tax Foundation, but that’s not where the Badger State was rated the worst. Its unemployment insurance tax was ranked among the 10 worst in the country.

Wyoming

Top Corporate Income Tax Rate: 0%

Wyoming tied South Dakota for the top-ranked corporate income tax system in the country. In both cases, a lack of taxes on corporate profits without the additional tax on revenues that hits business operators in Washington, Ohio, Texas and Nevada helps make the tax environment especially appealing for business.

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