When it comes to regulation and tax laws regarding corporations, all states are not created equal. How does an entrepreneur decide which one to choose? If you intend to remain relatively small and will only conduct business within one state, it might make sense to go with your home state for ease of formation. But if you will be doing business in a variety of states, it might be worth your while to shop around. Here are the five best states for incorporation when taking into account factors like regulations, fees, taxes, and how friendly the court system is to business when resolving disputes.
1. Wyoming
This lightly-populated western state has been a friendly haven for corporations for a while now and doesn’t seem ready to change any time soon. Why choose Wyoming for your new business? Like some other states, Wyoming has no income or corporate tax, which is not necessarily unusual. What is unusual is it has chosen not to make up the potential shortfall by applying a heavy sales tax, which runs a very modest 4.0 percent.
2. South Dakota
South Dakota is another sparsely-populated state that has chosen to make itself a friendly corporate destination. The work of the legislature has paid off with a #2 ranking for three years straight. As another state with no corporate or individual income tax and – like Wyoming – sporting a low sales tax of 4.50 percent, South Dakota boasts below-average taxes on everything but property tax, which is assessed at 1.36 percent.
3. Alaska
For our third state on this list, we look to the north. Far to the north. Thanks to the highest revenue per capita in the nation (mostly oil and gas companies), Alaska’s economy has been roaring along for a long time, and that doesn’t look to change any time soon. Not only does the state have no income tax but there is no sales tax either (no other state does this). On the downside, there is a corporate tax of 9.4 percent to contend with and higher-than-average unemployment.
4. Florida
The Sunshine State occupies the fourth spot on the list. The positives for potential corporations to choose Florida include a modest corporate tax of 5.5 percent and zero income tax. State regulations are quite friendly and allow enough deductions that about half of businesses located here pay no taxes at all. A 6.00 percent sales tax and high fees in other areas (like car licensing) appear to be intended to make up some money on the backs of regular citizens.
5. Nevada
Since Nevada receives a large chunk of state revenue from gambling taxes and a rather high sales tax rate of 6.85 percent, it can afford to be nice to corporations in the form of no corporate or individual taxes. This state has long been popular with those looking to incorporate.
The Bottom Line
If you’re an entrepreneur preparing to incorporate a business, you now know the five best states to take a look at. If you’re wondering which are the worst, for our money you would want to avoid Minnesota, Vermont, California, New York, and New Jersey. These states will gouge you from every possible direction.