States with the lowest tax burden on small businesses

- National averages: Small businesses face an array of taxes that impact their bottom line. On average, across the United States, the state sales tax rate is 5.07%, supplemented by a local sales tax rate typically imposed at the county or city level, averaging an additional 1.33%. The burden of personal property tax on small businesses averages 0.98%. As for income tax, the average effective rate for individuals (the rate paid by sole proprietors and "pass-through" entities) stands at 3.95%, while corporations are taxed at a slightly higher average rate of 5.23%. Lastly, the average unemployment tax is at 4.14%. If a state did not levy a tax for any of these categories, the tax rate for that state was factored into the national average as 0%.

- Regional differences: Regional disparities in tax burdens faced by small businesses in the United States are evident when comparing average composite scores by region. The West leads the pack with an average score of 58.00, indicating a relatively lower tax burden on businesses. Trailing closely behind, the South offers a business-friendly tax environment with an average score of 56.04. The Midwest, while not as tax-advantageous, still presents a moderate average score of 49.55. However, businesses in the Northeast face the highest tax burden on average, as reflected in the region's average score of 48.84.

10. Tennessee
- Individual income tax rate: None
- Corporate income tax rate: 6.50%
- State sales tax rate: 7.00%
- Average local sales tax rate: 2.45%

9. Ohio
- Individual income tax rate: 2.49%
- Corporate income tax rate: None%
- State sales tax rate: 5.75%
- Average local sales tax rate: 1.35%

8. Florida
- Individual income tax rate: None
- Corporate income tax rate: 5.50%
- State sales tax rate: 6.00%
- Average local sales tax rate: 0.65%

7. Texas
- Individual income tax rate: None
- Corporate income tax rate: None (the corporate tax threshold in Texas is $1.23 million)
- State sales tax rate: 6.25%
- Average local sales tax rate: 1.80%

6. Washington
- Individual income tax rate: None
- Corporate income tax rate equivalent: 0.85%
- State sales tax rate: 6.50%
- Average local sales tax rate: 2.39%

5. Alaska
- Individual income tax rate: None
- Corporate income tax rate: 4.00%
- State sales tax rate: None
- Average local sales tax rate: 1.76%

4. Nevada
- Individual income tax rate: None
- Corporate income tax rate: None
- State sales tax rate: 6.85%
- Average local sales tax rate: 1.30%

3. South Dakota
- Individual income tax rate: None
- Corporate income tax rate: None
- State sales tax rate: 4.00%
-- Average local sales tax rate: 1.83%

2. New Hampshire
- Individual income tax rate: None
- Corporate income tax rate: None (the corporate tax threshold in New Hampshire is $103,000)
- State sales tax rate: None
- Average local sales tax rate: None

1. Wyoming
- Individual income tax rate: None
- Corporate income tax rate: None
- State sales tax rate: 4.00%
- Average local sales tax rate: 1.83%

Methodology

To determine the state with the lowest tax burden on small businesses in 2023, the data and research team at Swyft Filings ranked each state using a composite score of factors across four key tax categories: income tax, property tax, unemployment tax, and sales tax. Below are the four categories and their percentage of the composite score.

Note: Rather than marginal tax rates, effective tax rates were used to score states, as they provide a clearer picture of the actual tax burden imposed. Income (individual and corporate) tax rates were calculated based on the annual median revenue of a U.S. small business of $78,000.

Income tax: 50% of composite score
- Individual income tax rate from state websites
- Corporate income tax rate from state websites

Property tax: 15% of composite score
- Median property tax rate

Unemployment tax: 15% of composite score
- Unemployment tax rate
- New employer tax rate
- SUTA wage base

Sales tax: 20% of composite score
- State sales tax rate
- Average local sales tax rate

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