Best States to Start a Business for Tax Purposes

If you have decided to start your business, the location where you start can make or break your business. A favorable economic environment is an utmost requirement to attract more customers and to succeed finally.

Taxes are among the most important parts of a favorable economic environment that need your attention. The taxes you pay each year can radically affect your business. Initiating a business in a tax-friendly state can drive the business more beneficially.

Based on tax components such as individual income tax, sales tax, corporate tax, property tax, and unemployment insurance tax, several states top the list of best states to start a business.

If you still haven’t decided on a single location, consider choosing one of the best states for your business. 

4 Great states to initiate a company


Looking for a place to start a business

South Dakota

  • Tax Climate: 9.32
  • Rate of New Entrepreneurs: 5.08
  • Business Survival Rate: 7.63

If you start a business in South Dakota, you will appreciate the state tax climate with no corporate or individual income tax. This makes it a tax-friendly state for small entrepreneurs.

The ratio of the state being hit by natural disasters is also low. The median annual household income is $59,533, so the businesses wouldn’t have any problem locating affordable labor. The consumer spending is $40,798, a rate of 5.33%, which is relatively low.

The Office of Economic Development of South Dakota also offers free business startup packets to those interested in starting a business in the state.


  • Tax Climate: 8.11
  • Rate of New Entrepreneurs: 9.37
  • Business Survival Rate: 5.57

The main reason for more entrepreneurs attracted to Florida is its tax climate. Florida ranks at No.1 in individual income tax, with no personal income tax assessed. Additionally, the median annual income in the state is $59,227, which makes for affordable labor costs. It ranks at No.4 for corporate taxes.

Florida has a steady rate of new entrepreneurs and is increasing over the past five years. In any given month, 0.42% of non-business owner adults start their own business. Unfortunately, the business survival rate is low, and only 49.5% of new businesses will survive the next five years.

Another downside is that natural disasters often hit the state.

➡LEARN MORE: What is your Estimated Tax Liability for your First Twelve Months of Business?


  • Tax Climate: 6.23
  • Rate of New Entrepreneurs: 9.21
  • Business Survival Rate: 8.55

Montana has the highest financial literacy rate and is famous for mining, developed forestry, energy production, and agriculture.

The corporate tax rate for Montana is 6.75% and has a minimum tax of $50, irrespective of earnings. The state charges are between 1.0 and 6.9% of the earner’s wages.

The state does not charge any sales tax. It is a great place to start a new business-like setting up a shop, and the main reason is Montana has a very strong labor market and low costs of initiating a business. The state has the second-lowest cost of real labor at an average of $31.56 in the US.

With the low living cost and better quality of life, the employee retention rate in Montana is higher than in other states.


  • Tax Climate: 5.16
  • Rate of New Entrepreneurs: 3.89
  • Business Survival Rate: 5.80

The state holds somewhat a middle rank on taxes. The corporate tax rate is 4.95%, and the combined state and local tax average is above 7.81%. It wouldn’t be wrong to say that Utah is amongst the best locations to start a new business. It tops the list of best places for investing in real estate and has low business taxes per employee. 

Its GDP and population are also showing a positive change. The adult residents find more chances to complete college and got significant access to capital. The top functioning industries of the state are travel and tourism, sporting goods, natural products, aerospace, IT, and health technology.