Best and worst states for small businesses

5. North Dakota

- Grade: A
- Income tax: 2.27% Corporate tax: 3.14%
- LLC Formation fee: $135

With more SBA lenders per capita than any other state, North Dakota is a prime location for small businesses that want to increase working capital, finance large equipment purchases, or rapidly expand. It also has consistently low filing fees for LLCs, Corporations, and Nonprofits and among the lowest tax rates in the nation, ensuring that both emerging and established businesses experience a significantly reduced cost burden compared to other states. The Peace Garden State sits in the middle of the pack for new business survival, ranking 25th.

4. Washington

- Grade: A
- Income tax: 0% Corporate tax: 0%
- LLC Formation fee: $200

Washington ranks fourth in the nation for the best states for small businesses. With no state income tax on either the individual or corporate level, businesses in Washington are able to retain more of their profits and reinvest in growth initiatives. In fact, The Evergreen State has the 3rd highest survival rate for new businesses in 2021-2022. It also ranks 6th in the country in gross domestic product (GDP) per capita, an indicator of economic stability and workforce productivity.

3. Ohio

- Grade: A
- Income tax: 2.49% Corporate tax: 0%
- LLC Formation fee: $99

Ohio is the third-best state for small businesses in 2023. Small businesses in the Buckeye State benefit from low annual fees and taxes; the Buckeye State is one of only four states that do not levy a corporate income tax, and its personal income tax rate is the 5th-lowest in the nation. Ohio ranks 3rd for the most SBA loans granted per capita and is among the top 15 states for business survival rates and 5-year growth in business employment.

2. Texas

- Grade: A+
- Income tax: 0% Corporate tax: 0%
- LLC Formation fee: $300

Texas is one of the most business-friendly states in the country. The state has just a $5 annual report fee for corporations and no annual report fee for LLCs at all. With no state income tax, Texas is an excellent place for small businesses looking for low tax rates. The Lone Star State also has the second-fastest 5-year growth in business employment in the nation.

1. South Dakota

- Grade: A++
- Income tax: 0% Corporate tax: 0%
- LLC Formation fee: $150

The best state for small businesses in 2023 is South Dakota. Levying no individual or business income tax, it's also the 8th lowest in the country for business expenses. South Dakota's business environment cultivates opportunities for small businesses, ranking 2nd highest in the nation for the number of SBA loans granted per capita in the U.S. and for its 5-year business survival rate. 

5. Maine

- Grade: C
- Income tax: 6.55% Corporate tax: 3.5%
- LLC Formation fee: $175

Businesses in Maine have struggled to stay afloat. The state holds one of the country's worst 5-year business survival rates and average employment growth. While Maine has a relatively high number of SBA loans and business grants per capita, businesses often receive fewer funds than in other states: Maine had the 5th lowest average SBA loan amounts given and 4th lowest business grant amounts given in 2022.

4. Massachusetts

- Grade: C-
- Income tax: 5% Corporate tax: 8%
- LLC Formation fee: $500

Massachusetts has the highest business formation fees among all states, at $500, which could present a barrier to entry for new small businesses where every dollar is crucial. The state also levies high business taxes, including a corporate income tax rate of eight percent. For larger and more established businesses, though, Massachusetts shows some promise. It ranks highest among all states for GDP per capita, a measure of workforce productivity, making it a prime area for finding talented job candidates compared to other states.

3. Vermont

- Grade: C-
- Income tax: 6.6% Corporate tax: 7.89%
- LLC Formation fee: $125

In 2023, Vermont is the third-worst state for businesses in the nation. Like Maine, Vermont has a high proportion of SBA loans and business grants per capita, but funding amounts tend to fall short. The state has the lowest average dollar amount given for SBA loans and the 3rd lowest average dollar amount for business grants. Compared to other states, rates of business survival and growth in Vermont are also very low; the Green Mountain State has the 10th worst 5-year business survival rate, the 3rd worst business survival rate from 2021 through 2022, and the worst 5-year employment growth in the nation.

2. Rhode Island

- Grade: C-
- Income tax: 3.88% Corporate tax: 7%
- LLC Formation fee: $150

Rhode Island has the worst business survival rates for brand-new businesses: only 73%, or less than three-quarters, of businesses launched in the state in 2021 survived through 2022. This trend is consistent as the state also experienced the 4th-worst business survival rate from 2017-2022. Like many Northeast states, the cost of doing business (measured by Regional Price Parity) in Rhode Island is high compared to other states.

1. Maryland

- Grade: C-
- Income tax: 4.68% Corporate tax: 8.25%
- LLC Formation fee: $100

Maryland is the worst state for small businesses in 2023. Facing the 6th highest regional price parity in the U.S., businesses in Maryland often face steeper operational costs compared to their counterparts in most other states. The financial burden on Maryland's small businesses continues with some of the highest business formation and annual report fees, compounded by one of the highest corporate income tax rates at 8.25 percent. Maryland also granted the fewest SBA loans per capita in 2022, indicating that businesses in the Free State more than others to secure vital funding.

Methodology

To determine the best and worst states for small businesses in 2023, the data and research team at Swyft Filings ranked each state using a composite score of factors across six key dimensions: the relative cost of doing business, economic health and workforce productivity, state fees and taxes, support via state grants and SBA loans, and historical business survival rates. Each state was assigned a grade, from A++ to C-, based on their composite score.

Cost of doing business: 10% of composite score

- Regional price parity data by state and metro area.

Economic health and workforce productivity: 15% of composite score

- Moody's state credit ratings.
- S&P state credit ratings.
- GDP per capita.

State fees and taxes: 40% of composite score

Note: All tax rates were calculated based on the annual median revenue of a U.S. small business of $78,000.

- Formation fees by business type (LLC, Corporation, Nonprofit), per state government websites.
- Annual report filing fees by business type (LLC, Corporation, Nonprofit), per state government websites.
- Income tax (individual, corporate), per state government websites.

Business survival rates: 20% of composite score

- 1-year business survival rate.
- 5-year business survival rate.
- Average business size after 5 years.

State grants and SBA loans: 15% of composite score

- State grants: average dollar amount per state grant.
- State grants: state grants per capita.
- SBA 7(a) loans: average dollar amount per loan.
- SBA 7(a) loans: private lenders per capita.
- SBA 7(a) loans: loans granted per capita.

This story was produced by Swyft Filings and reviewed and distributed by Stacker Media.