When it comes to small business, every dollar counts. Tax money supports many public services that small businesses use, such as roads and postal services, but exorbitant taxes can also cut into a small business’ cash flow. However, for some small businesses, taxes can be surprisingly low. Different states have different tax rates, and the gap can be significant.
To better understand the disparity, the Small Business & Entrepreneurship Council released a nationwide study of the best and worst state tax systems. If you want to pay as few taxes as possible, check out the five states where small businesses pay the least in taxes.
Location, Location, Location: The Five Best State Tax Systems for Small Businesses
The home to Mount Rushmore comes in at number one on the list. (After all, who wants to tax Lincoln and Washington—even if they are stone heads?) South Dakota ranks highly for having the lowest rates in all types of taxes, including: personal income tax, capital gains tax and corporate income tax.
However, small businesses with big lands may think twice before moving here, as South Dakota ranks 17th for state and local property taxes. The state also charges some of the highest taxes on state and local sales and gross receipts and excise taxes, making it the one of the ten most costly states in this category.
The lone star state comes in at number two, with some of the nation’s lowest rates on personal income tax, capital gains tax and corporate income tax. Small businesses that need a lot of fuel will do well in Texas oil country, as Texas ranks 12th for gas and diesel taxes.
Nonetheless, property taxes for Texas are even worse than South Dakota’s, as Texas ranks 38th for state and local property tax rates. Online companies may also reconsider carefully before locating to Texas. While you save money on gas, Texas charges some of the highest wireless sales taxes in the country.
If you are looking for lower taxes, you can place your bet on Nevada. In third place, Nevada boasts some of the lowest personal and corporate income tax rates around. The state is also a top contender for best corporate capital gains tax rates in the country. In addition, Nevada offers one of the best wireless tax rates—second only to Oregon.
While Nevada scores at the top in some areas, it scores rather low in others. Nevada will cost you a lot of extra gas money, as it ranks 40th in state gas taxes. As for property taxes, Nevada ranks 33rd in the nation, meaning you would pay fewer property taxes in South Dakota but more in Texas. Nevada also ranks 47th for state and local sales, gross receipts and excise taxes.
As with all the top contenders, Wyoming means low income and capital gains taxes for small businesses. These Rocky Mountain roads hold the 2nd lowest rates for state gas and diesel taxes—second only to Alaska.
Of course, not all is well in Wyoming. The state ranks 46th in adjusted unemployment taxes, 48th in property tax rates and 49th in sales, gross receipts and excise taxes. The high tax rates in these areas may offset the benefits from lower income tax rates.
Named after the first president, this state is tied for the number one rank in personal and corporate income taxes and capital gains taxes. Coming in at 44th place for unemployment taxes, Washington will cost small business owners a pretty penny in labor. Also, this is one of the worst states for both online and in-person sales, as Washington ranks 50th for wireless tax and local sales tax rates.