The US consistently ranks among the best countries in the world to conduct business. However, it’s a vast nation, made up of 50 states that can each seem like a different country. And rightly so—virtually every state operates within its own set of laws, which can make running a business in, say, Georgia a pretty different experience from setting up shop in Utah.
Some states offer a better business environment than others, which makes deciding your business’s home base (or market entry) an important consideration. This article highlights the most business-friendly states, and how they earned their titles.
What makes a state business friendly?
There are various factors—including laws, demographics, and infrastructure—that contribute to some states consistently ranking among the most business friendly. These include:
- Taxation. Although all businesses in the US are subject to certain federal tax obligations, local tax treatment can vary greatly from state to state. Some state tax systems are friendlier to small business owners than others. Washington and Texas, for example, levy no corporate tax on income generated by corporations.
- Labor laws. State laws on minimum wage, employee insurance requirements, and payroll taxes can substantially drive up labor costs. States like Louisiana and New Mexico have been recognized for their low labor costs.
- Infrastructure. Businesses across the US rely on dependable local infrastructure like roads, rail lines, and business utilities. A well-designed or maintained transit system is crucial for on-time shipping, smooth logistics, and a continuous supply chain. Additionally, up-to-date telecommunications infrastructure (with high-speed internet and low incidence of service interruptions) are critical for small businesses that operate primarily online so they can quickly—and consistently—respond to orders and customer inquiries. Washington and North Dakotarank high in areas of this category.
- Education and skills of the local population. The education level of a state’s workforce is linked to business success. States with traditional colleges, as well as alternative occupational training programs and opportunities, tend to produce a more diverse and well-educated local workforce. This is a valuable resource to businesses because it helps ensure a skilled workforce and adequate labor supply to meet various business needs. Both Utah and Minnesota are known for their highly educated workforces.
- Ease of business setup. Some states offer easier pathways to setting up a small business than others. Colorado and North Carolina, for example, offer low new business formation fees and quickly navigable online incorporation processes.
- Cost of doing business. Besides startup costs, average ongoing business costs informs a state’s business friendliness. This often coincides with a state’s cost of living. Higher density, more urban states like California generally levy higher costs of doing business as a factor of their higher costs of living than more sparsely populated, rural states like North Dakota, or states with smaller populations overall, like Delaware.
What are the most business-friendly states?
Year to year, media outlets designate select states as the top states for business; these ratings tend to fluctuate over time. In order to come up with these rankings, analysts look at various factors—from labor costs to tax treatments—and, in many cases, weighing certain factors over others. These 10 states are among those most frequently cited as the best places to do business in America.
Colorado boasts one of the lowest setup costs for small businesses in the country—just $50 to set up an LLC or corporation. Some new businesses here can even engage in fields that are widely restricted elsewhere in the country, such as the cannabis industry. Colorado businesses have a high business survival rate, in part thanks to the state’s highly educated workforce (Colorado is the second-most-educated state in the country), which keeps it competitive, and a favorable tax climate (4.55% income tax rate for corporate entities).
Delaware is widely considered to be one of the most business-friendly states in America due to its favorable corporate laws, quick business formations, and specialized courts for handling business disputes. The state also offers favorable tax policies and an updated, well-maintained infrastructure. For these reasons, Delaware consistently ranks among the best states for small businesses in the finance and technology sectors. If you start a business in Delaware, there’s no sales tax on goods sold in the state.
Georgia has one of the fastest-growing state economies, with a rapidly expanding, highly skilled, and innovative workforce. This is largely due to the popularity of the Atlanta metropolitan area as a place to live and work. Its relatively high taxes aside, Georgia offers a variety of incentives for businesses, including special tax credits and exemptions, and support programs for startups.
Minnesta has a history of worker protections. Additionally, a high quality of life and overall resident happiness score makes it an attractive place for some of the country’s most educated and skilled workers. The state also boasts well-maintained infrastructure and a supportive business community, making Minnesota one of the most consistently high-ranked places in the US to live and work.
5. North Carolina
North Carolina is one of the fastest-growing economies in an already fast-growing region of the US, according to the US Census Bureau. This is due primarily to its pro-business policies, relatively low taxes (a 2.5% corporate tax rate), and overall favorable business climate. North Carolina has a highly skilled workforce, making it an attractive location for small businesses in technology and manufacturing industries. The state also offers various incentives for businesses, like tax credits and startup support initiatives such as the Research Triangle Regional Partnership.
Tennessee’s two bustling metropolitan areas—Memphis and Nashville—and its dynamic, high-tech economy make the state a great place to start a new business, especially for professional services businesses like health offices and accounting firms. It also offers a variety of tax credits and exemptions—plus, access to capital investments and mentorship programs.
As the saying goes: Everything is bigger in Texas—including economic opportunity for small businesses. The Lone Star State’s favorable business climate is based largely on its low taxes, large and highly educated skilled workforce, pro-business laws, and favorable tax codes. Small businesses in the technology, energy, health care, and logistics sectors do particularly well in Texas—though businesses of any type can take advantage of its tax credits, job creation incentives, and startup financing initiatives. Texas is also one of the few states that levies no income tax on corporate earnings.
Utah is considered one of the more business-friendly states in the West due to several important factors, including its low taxes (4.85% corporate income tax), fast-growing economy, highly skilled workforce, state-of-the-art technological infrastructure, and support for startups and small businesses. Utah also has a strong venture capital community, which provides access to funding for small businesses in their startup phase.
They say Virginia is for lovers—but it’s also for entrepreneurs. The Commonwealth of Virginia’s widely recognized business friendliness is mainly based on its favorable business climate. Virginia’s corporate taxes are relatively low (6%), and its economic hub stretches from the Norfolk-Virginia Beach area to Richmond to Northern Virginia, near the major metropolitan area of Washington, DC. The District and Hampton Roads are both often considered centers for government and military operations, lending Virginia businesses access to lucrative government contracts. Virginia’s workforce is considered one of the most highly educated in the country.
Washington is home to a dynamic venture capital community, making it one of the more accessible places in America for startups and small businesses to acquire third-party funding. The state also boasts a favorable tax climate; it levies no taxes on corporate income. The Evergreen State also has a highly educated and skilled workforce. It’s top-ranked for STEM-friendliness (science, technology, engineering, and math), including a steady increase in degrees in the STEM education category.
Most business-friendly states FAQ
What are the potential benefits for businesses that choose to relocate to or expand in a business-friendly state?
Benefits for businesses that choose to relocate or expand in a business-friendly state will depend on the individual business’s priorities. As a small-business owner looking to prioritize tax savings, you’d benefit significantly from relocating to Texas or Washington. If attracting educated, skilled workers is your goal, consider Minnesota or Georgia.
What are some of the key factors that make a state attractive to businesses?
- Low taxes
- A growing economy
- A highly educated and skilled workforce
- Access to capital
- Favorable business laws (regarding taxes and labor)
- Tax incentive programs
- Startup funding opportunities
How does the quality of infrastructure and transportation affect a state’s business-friendliness?
Well-maintained roads and transit systems can positively affect businesses that rely on efficient supply chain management, such as the retail trade industry, construction businesses, or any business dealing in tangible goods or materials. States with state-of-the-art telecommunications infrastructure can more likely avoid internet and phone outages that might erode earnings and impact customer relationships.
What is the happiest state in the US.?
According to studies, Minnesota consistently ranks as one of the happiest states in the US.
Which state has the lowest taxes for business?
Texas and Washington have some of the lowest taxes for businesses in America, as neither imposes taxes on corporate income.