Running a successful business requires navigating a complex labyrinth of federal, state, and local rules and regulations. Tax policies are not the least of these burdens given the mix of corporate income tax, sales tax, property taxes, individual income taxes, and unemployment taxes that can be imposed.
But, some states are notably more business-friendly than others.
Wyoming, South Dakota, and Alaska are at the top of the list in the Tax Foundation’s latest State Business Tax Climate Index, which ranks all 50 states.
Key Takeaways
- Not all states impose all of the most common business taxes.
- Taxes in a few northeast U.S. states are higher than others.
- Eight states have no individual income tax as of tax year 2025.
- Alaska, Montana, and New Hampshire don’t impose state-level sales taxes.
- Numerous federal tax credits and programs can ease a bit of the sting regardless of where you do business.
Best States for Business Taxes
The Tax Foundation publishes an annual State Business Tax Climate Index comparing all 50 states based on five factors: individual income tax, sales tax, corporate income tax, property tax, and unemployment insurance tax.
The 2024 report names these states as the top 10:
- Wyoming
- South Dakota
- Alaska
- Florida
- Montana
- New Hampshire
- Nevada
- Utah
- North Carolina
- Indiana
Each has its own mix of tax breaks and business-friendly policies, any of which may be more important than others to you and your business.
Individual Income Tax
If you live in the state in which you do business, the state’s individual income tax rates are a significant factor. Seven states imposed no individual income tax at all as of tax year 2024: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. Washington taxes only capital gains.
Florida, South Dakota, Wyoming, Nevada, and New Hampshire appear in the Tax Foundation’s top 10. New Hampshire taxed only interest and dividends but it has repealed that tax effective December 31, 2024.
Important
Indiana has been incrementally reducing its individual income tax rate. It’s just 3.05% as of the 2024 tax year. All Indiana counties also impose income tax, however.
Corporate Income Tax
Florida, South Dakota, and Wyoming don’t just spare your personal income from taxation. They don’t impose a corporate income tax, either.
Among the states that do levy a corporate tax, North Carolina imposes a rate of just 2.5% compared to 5.5% levied by Florida.
New Hampshire allows businesses to deduct business interest expenses that are disallowed under federal tax law.
Sales Tax
Sales tax is paid by consumers at the time of sale. That extra cost can affect sales, especially if your customers live a short drive from a lower-tax jurisdiction.
Sales taxes can be imposed by the state or local government, or both.
Alaska, Montana, and New Hampshire don’t have state-level sales taxes. South Dakota’s sales tax rate is 4.2% as of 2025 but it allows municipalities to add their own sales tax on top. Indiana’s sales tax is a wince-worthy 7%. It’s something to consider if you’re doing business as a retailer.
Unemployment Insurance Tax
No state can spare your business from the unemployment insurance tax, but some states are kinder than others.
The unemployment insurance program is a complicated system managed by tax authorities at both the federal and state levels. It’s difficult to pin down a single rate for any state.
Nevertheless, some states are clearly kinder than others. North Carolina business owners fare well. Those in Alaska have a particularly heavy burden.
Property Tax
Property tax is a big factor if you own your home, your business property, or both. The Tax Foundation has also compiled a 2024 report ranking states according to this burden.
Its list of states with the lowest property taxes includes Alaska, Florida, South Dakota, Tennessee, Texas, Washington, and Wyoming,
Since property taxes can be charged by both state and county, that’s how the Tax Foundation breaks them down. The lowest property tax rates can be found in parts of Alaska, Louisiana, and Alabama. The highest rates are charged in parts of California, New Jersey, and New York.
Federal Tax Credits
Wherever your business is located, you can benefit from some federal provisions that are intended to ease the tax burden on businesses.
The Internal Revenue Code (IRC) provides the general business tax credit that encompasses a multitude of other credits. They include the Work Opportunity Credit, the Credit for Employer-Provided Childcare Facilities and Services, and the Qualified Plug-In Electric Drive Motor Vehicle Credit, among many others
You can find a full list on the IRS website along with links that lead to their qualifying details and the proper forms to fill out to claim them.
The Small Business Healthcare Tax Credit allows businesses to shave up to 50% off their costs for employee premiums. To qualify, you must pay at least 50% of their premium costs and have fewer than 25 full-time employees at an average salary of no more than $56,000 per year.
The Bottom Line
One tax category might be more of a burden than others on your business, so it’s important to weigh which is the most important for you. States like Wyoming, South Dakota, and Alaska have top rankings for their business-friendly tax climates.
Ultimately, understanding the full tax landscape of your state can help you make more informed decisions about where to establish and grow your business.