Published April 10, 2012
Taxes are a significant concern for business, and a heavy tax burden can severely cut into revenue. In an effort to generate new business and investment, some states have reduced their tax rates to create a more favorable environment for businesses. A 2011 study by the Tax Foundation assessed the tax climate in each US state and identified those with the most favorable tax conditions for businesses. Here are the top five states with the lowest tax rates for businesses.
No. 5 – Florida
The Sunshine State’s zero percent personal income and individual capital gains tax rates helped propel it to its position as the fifth most business-friendly tax environment in the country. Florida’s tax burden is lightened even further by its lower-than-average corporate income and unemployment tax rate. However, higher property, gas, diesel, wireless and gross receipts and excise tax rates stopped it short of reaching the top three.
No. 4 – Nevada
Nevada is well-known for its low tax burden, and consistently ranks among the top US states for entrepreneurs. Business income tax, franchise tax, estate tax, inventory tax, gift tax and tax on corporate shares have all been eliminated in Nevada, while property tax increases are limited. This favorable tax structure, coupled with a host of state incentive programs, including sales tax deferrals, payroll tax abatement and personal property tax abatement, has afforded Nevada with an extremely promising entrepreneurial climate.
No. 3 – Wyoming
Much like Florida, Wyoming’s zero percent tax rate on personal income and individual capital gains has allowed it to rank among the top tax climates in America. In addition, its zero percent corporate income tax and corporate capital gains tax rates, along with low gas and diesel taxes have helped placed Wyoming in the top three on this list. However, the state’s remarkably high property and unemployment, and local sales, gross receipts and excise taxes stopped it short of reaching the top spot.
No. 2 – Alaska
Alaska’s reliance on federal subsidies has allowed it to have the lowest individual tax burden and the second-best tax environment for businesses in the US. Alaska one of only two states in the country that has eliminated both the state sales tax and income tax. The state also boasts an all-important zero percent individual capital gains tax, as well as extremely low gas, diesel and gross receipts and excise taxes. However, the state ranks in at number two thanks to a higher corporate income tax, corporate capital gains tax and property taxes than the top US state.
No. 1 – South Dakota
South Dakota remarkably favorable tax climate makes it a true tax haven for businesses. Incredibly, the state boasts no personal or corporate income tax, as well as no individual or corporate capital gains tax. The state’s modest sales and property taxes, and below-average gas and diesel taxes have all made South Dakota an incredibly appealing location to own a business.