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When you’re starting off as a small business in any state, one of the biggest concerns you may have is the tax rates for small businesses. Depending on where your company resides, you may receive different tax rates which will affect your tax return and your budget for the following year. This is also something crucial to consider if you have yet to choose a state that you’ll open your small business in. Here are the best from the worst states to open a business in based on their tax rates alone:

tax rates for small businesses

1. Tax Rates in South Dakota

As of last year, South Dakota ranked highly in regards to their fair tax rates for small businesses. This can be deducted by the average small business owner state and local taxes, which was a low $5,391. They also have a low state tax burden of 7.1 percent, which regards the amount of income, property, or sales tax levied on an individual or business. South Dakota has no state income tax bracket, meaning there is no specific tax rate you pay on your highest dollar of taxable income. This is preferable for small businesses because you are not forced to pay more taxes based on a set amount of income. This is truly one of the best states to open a small business in.

tax rates for small businesses

2. Tax Rates in Wyoming

Another great state to open a business in is Wyoming. Because Wyoming is not overrun by big S and C class corporations, their state is an excellent place to have a startup company.  The average small business owner state and local taxes in Wyoming are $5,428. Not to mention that their state tax burden as percent of income is 7.1 percent, and they have no state income tax bracket, just like South Dakota.

tax rates for small businesses

3. Tax Rates in Texas

If you are looking for a state that houses great potential growth for your company, Texas is another excellent option. This state is home to several renowned institutions and businesses, but has fair enough tax rates for small businesses as well. Their average small business owner state and local taxes are $5,759, with a common state tax burden as percent of income of 7.6 percent. With no state income tax bracket, this state is still able to rank highly with its ability to foster growth for all types of companies.

tax rates for small businesses

4. Tax Rates in Illinois

On the opposite end of the spectrum, Illinois is ranked quite low on the scale of states with best tax rates for small business. This low ranking is caused by their inflated average small business owner state and local taxes of $8,349.68. Their state tax burden is at 11 percent, which is taxed from your earnings if you meet a certain income. Notably, their top state income tax bracket is 3.75 percent which differs from the previously mentioned states that had no tax bracket.

tax rates for small businesses

5. Tax Rates in New Jersey

Lastly, New Jersey has been ranked as the absolute worst state to start a small business in. To start off with, their average small business owner state and local taxes is a high $9,279. The state tax burden as percent of income is also at an incredibly lofty 12.2 percent. And to top it all off, the top state income tax bracket is at 8.97 percent, so your income is limited. It is undoubtedly difficult to start a new business in New Jersey that is not properly funded beforehand or backed up by a bigger, well-developed company.

Why Start A Business in Arizona?

As you may have noticed, Arizona really resides in the neutral zone between the best and worst states to open a small business in. It should be noted that Arizona impressively brought their corporate income tax rate from 5.5 to 4.9 percent in 2017. Your small business will thrive or crash depending on which city you locate to. For instance, opening a small business in cities like Glendale AZ or Surprise AZ are more likely to succeed compared to those trying to open in Scottsdale or Tempe. You can find more tips on the least expensive Phoenix cities to open a business in. If you’re seeking more guidance on how to manage aspects of your company like payroll, HR support, and accounting services, consider working with PayTech to make managing your business simpler.


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