One of the most famous quotes in U.S. history is attributed to Benjamin Franklin: “Nothing is certain but death and taxes.”
The question is: Are they related?
It may be a stretch to say that taxes kill small businesses, but they certainly can hinder them. My company recently conducted an analysis of the best cities for small business growth. Houston was ranked number one, based on a combination of factors: average annual revenue, average number of employees, average age of business (in months), highest average credit score, and local sales tax rates.
Chicago and Los Angeles ranked among the highest taxed cities, followed by the San Francisco-Oakland Bay Area, Seattle, St. Louis, Phoenix, and New York City.
Tax rates and other high costs hinder businesses in cities such as New York, where revenues and credit scores are high, as are the local tax rates and the cost of living. So it makes sense that the cost of doing business is higher in New York, where unions are strong and result in higher labor costs than in other cities across the country. Further, the sales tax in the Big Apple is 8.875%, one of the highest in the country.
Average wage costs are about $6,200 per month in the New York City metro area, the highest in the country. Currently, the minimum wage in New York is $7.25/hour and it is eventually increasing to $9/hour over the next three years. It will be $8 by the end of 2013, $8.75 by the end of 2014, and $9 by the end of 2015.
Business owners are having to plan for the minimum wage hike, as well as the impact of ObamaCare for companies employing or planning to employ more than 50 full time employees in 2014. Many entrepreneurs view ObamaCare, and its penalties for non-compliance, as yet another tax on business.
It does not take an MBA to understand that controlling the cost of doing business is among the most critical factors in ensuring long-term economic survival and growth. Understanding the local cost structure provides an entrepreneur the ability to calculate working capital needs. Taxes play a significant role -- and never a positive one -- for small business growth.
(For the complete Top 25 ranking of America's top small business cities, including tax rates, click here.)
Rohit Arora is co-founder and CEO of Biz2Credit, an online credit marketplace that connects small- and medium-sized businesses with a network of 1,200+ lenders, service providers, and complementary business tools. Having arranged $800 million in funding, Biz2Credit is a leading resource for loans, lines of credit, working capital and more. Follow Rohit on Twitter @Biz2Credit and on Facebook.