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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.

The most tax-friendly states for businesses, according to the Tax Foundation’s most recent State Business Tax Climate Index, don’t all have one thing in common. But 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.”

Here, we’ll take a look at America’s top tax-friendly states, and what makes them that way.

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 second-best in property tax and 11thin unemployment insurance tax. Among its upsides: corporate income tax reductions scheduled out through fiscal 2022, including a decline last year from 6% to 5.75%.

9. 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 (eighth), with an average effective property tax rate of just 0.77% (the national average is 1.19%).

8. Utah: The Tax Foundation notes that “Utah shaved both its corporate and individual income tax rates from 5 go 4.95 percent,” and that it “continues to rank the best of any state which imposes all the major tax types.” Utah also is third-best in property taxes, at 0.67%.

7. Oregon: Oregon, which has no sales tax, actually moved up three spots from its No. 10 rank from last year. Its ranking on that front actually helps to make up for bottom-half ranks in corporate tax (30th), individual income tax (36th) and unemployment insurance tax (37th).

6. New Hampshire: New Hampshire also has no sales tax, as well as a top-10 individual income tax rank (it levies a 5% tax on interest and dividends, but no income tax on wages and salaries). That said, N.H. is in the bottom quintile in corporate tax (45th), property tax (44th) and unemployment insurance tax (44th).

5. Montana: Montana is the third and final state in the top ten with no sales tax, but the only one to crack the top five. And unlike Oregon and New Hampshire, it actually features a more tax-friendly environment across the board, including the 10th-best property tax at 0.85%.

4. Florida: Florida, which has no individual income tax, also ranks second in unemployment insurance tax and sixth in corporate taxes. Its property taxes aren’t high, either, at 1.02%, making it the 11thbest state in that regard.

3. South Dakota: South Dakota has no corporate or individual income taxes, which more or less carries its overall ranking. Otherwise, its rankings for sales taxes (33rd), property taxes (28th) and unemployment insurance taxes (39th) are in the bottom half of those respective categories.

2. Alaska: Alaska has a strong 1-2 punch of no individual income tax or state-level sales tax. However, its corporate taxes (25th) and property taxes (23rd) are relatively middle-of-the-road. Its corporate taxes, for instance, range from between 0% to 9.4% in a system that includes 10 tax brackets.

1. Wyoming: Wyoming retains its spot at the top thanks not just to its lack of corporate or individual income taxes, but also a low 4% general sales tax rate (also, cities and municipalities in the state don’t have city sales taxes). But you will pay an above-average rate on property taxes (38th) and unemployment insurance taxes (36th).

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 how 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 at440.892.9088 or contact us online, and we’ll get to work improving your small business’ tax situation.

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