Best States for Corporations: Everything You Need to Know

Knowing the best states for corporations can help you decide where to structure your business.4 min read

Knowing the best states for corporations can help you decide where to structure your business. In 2010, the State Business Tax Climate Index, a study that ranks the best and worst states for business taxes, was released from the Tax Foundation, which is a non-partisan tax research group in Washington, D.C.

Most Tax-Friendly States

The Tax Foundation lists the following states as the most tax-friendly:

• South Dakota.
• Wyoming.
• Alaska.
• Nevada.
• Florida.
• Montana.
• New Hampshire.
• Delaware.
• Washington.
• Utah.

South Dakota, Wyoming, Nevada, and Washington do not impose a corporate or individual income tax. Alaska and Florida do not impose an individual income tax, but Alaska does have jurisdictions that impose a sales tax. Montana, New Hampshire, and Delaware do not have a sales tax, and while Delaware does have a very favorable law environment, the state has the second worse corporate income tax in the nation. Utah does have both a favorable unemployment insurance tax system and low property taxes but does impose all major taxes.

In determining the top 10 states, the Tax Foundation took into consideration the states that were absent of a major state tax. Just short of making the top ten list, landing at number 11 is Texas. The state does not have an individual income tax and does not recognize LLCs or S corporations. In addition, Texas does impose taxes on intangible property, such as stocks and bonds.

The study reported Iowa, Ohio, California, New York, and New Jersey as being the least tax-friendly states for business. Iowa fails to tie tax increases to inflation and the state imposes both a corporate and individual alternative minimum tax, AMT, causing Iowa to fall among the bottom states on the list.