You can’t escape taxes when running a small business, but depending on where you locate, you can minimize how much you pay out. Small business tax requirements vary greatly from state to state, which means where you choose to set up shop significantly affects profitability.
When it comes to the tax man’s long list of demands, several tax types in particular can take a big bite out of your bottom line. These include property, sales, excise, unemployment insurance and corporate and personal income taxes. Personal income taxes are one of the most significant, because 92 percent of small business owners file taxes as individuals (sole proprietorships, S-Corps and partnerships), according to the Small Business & Entrepreneurship Council.
These five states feature favorable business tax structures:
Considered the most tax-friendly state in recent years, Wyoming is one of only three states in the nation that doesn’t have corporate income tax, and is among just seven states that levy no personal income tax. The state’s sales tax rate is one of the lowest in the nation at just 4 percent, and Wyoming’s unemployment rate is at 4.2 percent. Excise taxes are also very reasonable. Property taxes are high, however, at $2,173 per capita.
Running a business in Nevada is an educated gamble when you consider that the state doesn’t charge any individual or corporate income taxes. Property tax is also fairly low at $1,109 per capita. Nevada does have a relatively high sales tax rate at 6.85 percent, however, and the unemployment rate is one of the highest in the nation at 6.8 percent, according to December 2014 figures from the Bureau of Labor Statistics.
3. South Dakota
South Dakota features a favorable small business climate with its low unemployment rate at 3.3 percent, as of December 2014. South Dakota’s sales tax rate is also attractive at just 4 percent. The state collects no individual or corporate income tax, though it does place a franchise tax on financial institutions. Property taxes in the state are considered mid-range at $1,196 per capita.
Alaska ranks fourth on the Tax Foundation’s 2015 State Business Tax Climate Index. The state features no sales tax, providing small business owners with a major plus when it comes to retailing merchandise. There is also no individual income tax in Alaska. Due to the location of the state, it does feature particularly high excise taxes, and property taxes are among the highest in the nation at $2,077 per capita. The unemployment range is also a little on the high side at 6.3 percent.
Conditions are bright in the Sunshine State when it comes to small business taxes. Unemployment rates are fairly low at 5.6 percent, according to December 2014 Bureau of Labor Statistics. Florida also has no income tax. Sales tax, however, runs a little high at 6 percent, and excise tax can also be costly. Property taxes fall mid-range at $1,369 per capita.
The tax man knocks no matter what, but if you run your business in one of these states, you can be assured that he isn’t rapping on your doors as loudly as some states.