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The Best States to Start a Business

The Most Entrepreneur-Friendly States


The Small Business and Entrepreneurship Council released its 14th annual Small Business Survival Index this month, looking at public policy climates across the United States. The group ranked the states and the District of Columbia considering 36 criteria such as income tax, corporate tax rates, crime rates and other factors that make a state an attractive place to set up shop.

The measures are added together for an overall rating.

Raymond Keating, chief economist at the council who analyzed the data, noted that states have been confronted by huge budget shortfalls since the state’s last report, and that may be why 11 states this year have higher personal income tax rates and 10 have a higher top capital gains tax rate on individuals.

Keating says small firms are following the opportunities. From 2000 to 2008, the top 25 states on the 2009 Index experienced population growth of 10.3%, while among the bottom 26 (including the District of Columbia), population growth registered 5.6%.  In terms of raw numbers, the top 25 added 15.1 million in population, while the bottom 26 added 7.5 million.

Following are the top 10 and bottom 10 states — along with the District of Columbia — that the council has found have the best and worst policy environments for entrepreneurship. MainStreet.com took a sample of SBE Council’s 36 criteria and compared the top 10 and bottom 10 states on their tax rates on personal income, capital gains, corporate income, corporate capital gains and gas as well as crime rates.

Photo Credit: Getty Images

10th Least Entrepreneur-Friendly State: Hawaii


Hawaii may have some of the sunniest weather in the nation but it has the nation’s highest personal income tax and extremely high gas taxes.

Personal Income Tax Rate – 11%

Capital Gains Tax Rate – 7.25%

Corporate Income Tax Rate – 6.4%

Corporate Capital Gains Tax Rate – 4%

Gas Taxes (dollars per gallon of gasoline) – 44.4 cents

Crime Rate (per 100 residents) – 3.84%

Photo Credit: PlassPhoto

9th Least Entrepreneur-Friendly State: Minnesota


Minnesota is a natural beauty with its 12,000 lakes, but the North Star state’s leading industries of tourism, agriculture, computers and services, health care and medical equipment also face high tax rates.

Personal Income Tax Rate – 7.85%

Capital Gains Tax Rate – 7.85%

Corporate Income Tax Rate – 9.8%

Corporate Capital Gains Tax Rate – 9.8%

Gas Taxes – 27.2 cents

Crime Rate – 3.11%

Photo Credit: adamsfelt

8th Least Entrepreneur-Friendly State: Massachusetts


You’d think the Boston tea party would have made a more lasting impression, but Massachusetts didn’t do well in terms of corporate income taxes in the SBE Council study. It does boast a fairly low gas tax though.

Personal Income Tax Rate – 5.3%

Capital Gains Tax Rate – 5.3%

Corporate Income Tax Rate – 9.5%

Corporate Capital Gains Tax Rate – 9.5%

Gas Taxes – 23.5 cents

Crime Rate – 2.85%

Added S Corp Rate – 4.5%

Photo Credit: Paul Keleher

7th Least Entrepreneur-Friendly State: Rhode Island


Rhode Island has ranked near the bottom of this annual state ranking for years, says SBE Council’s Keating, for its high gas and diesel taxes and high property taxes — at 4.68%.

Personal Income Tax Rate – 6.5%

Capital Gains Tax Rate – 6.5%

Corporate Income Tax Rate – 9%

Corporate Capital Gains Tax Rate – 9%

Gas Taxes – 33 cents

Crime Rate – 3.09%

Photo Credit: Patricia Drury

6th Least Entrepreneur-Friendly State: Maine


Maine boasts an impressive low crime rate, but high taxes.

Personal Income Tax Rate – 8.5%

Capital Gains Tax Rate – 8.5%

Corporate Income Tax Rate – 8.93%

Corporate Capital Gains Tax Rate – 8.93%

Gas Taxes – 31 cents

Crime Rate – 2.57%

Photo Credit: fortes

5th Least Entrepreneur-Friendly State: Vermont


Vermont also has a low crime rate, but ranks low on the index for its high personal income taxes and capital gains tax rate.

Personal Income Tax Rate – 9.4%

Capital Gains Tax Rate – 9.4%

Corporate Income Tax Rate – 8.5%

Corporate Capital Gains Tax Rate – 8.5%

Gas Taxes – 23.3 cents

Crime Rate – 2.67%

Photo Credit: Bruce Tuten

4th Least Entrepreneur-Friendly State: New York


Economist Ray Keating said New York made some bad decisions in terms of its business climate and that has led to its drop on the list. “New York lawmakers raised taxes, personal income taxes, capital gains taxes and they just kept on spending,” he said. “It’s the poster child of what not to do” when trying to create an environment for innovation and growth.

Personal Income Tax Rate – 8.97%

Capital Gains Tax Rate – 8.97%

Corporate Income Tax Rate – 8.307%

Corporate Capital Gains Tax Rate – 8.307%

Gas Taxes – 44.8 cents

Crime Rate – 2.39%

Photo Credit: joiseyshowaa

3rd Least Entrepreneur-Friendly State: California


California would have the world’s seventh largest GDP if thought of as a country, but it also has some of the nation’s highest taxes.

Personal Income Tax Rate – 10.55%

Capital Gains Tax Rate – 10.55%

Corporate Income Tax Rate – 8.84%

Corporate Capital Gains Tax Rate – 8.84%

Gas Taxes – 47.4 cents

Crime Rate – 3.44%

Added S Corporation Rate – 1.5%

Photo Credit: tensaibuta

2nd Least Entrepreneur-Friendly State: New Jersey


Many New Yorkers used to flee to New Jersey to escape high tax rates in the Big Apple, but now New Jersey has surpassed New York in many of its tax rates. Both states have low crime rates though.

Personal Income Tax Rate – 10.75%

Capital Gains Tax Rate – 10.75%

Corporate Income Tax Rate – 9.36%

Corporate Capital Gains Tax Rate – 9.36%

Gas Taxes – 14.5 cents

Crime Rate – 2.62%

Photo Credit: psflannery

The Least Entrepreneur-Friendly State: District of Columbia


Residents of the nation’s capital like to sport the slogan “No Taxation Without Representation” on license plate frames and all over town. D.C. doesn’t get the same voting rights in the U.S. Congress as the states, but small firms sure get their share of taxes.

Personal Income Tax Rate – 8.5%

Capital Gains Tax Rate – 8.5%

Corporate Income Tax Rate – 9.975%

Corporate Capital Gains Tax Rate – 9.975%

Gas Taxes – 23.5 cents

Crime Rate – 6.54%

Photo Credit: Ed Yourdon

10th Most Entrepreneur-Friendly State: Virginia


Virginia is for lovers, as the state’s advertising slogan touts, but it’s also for middle-of-the-road taxes. Economist Ray Keating says Virginia is similar to Colorado in that it does well by not doing anything too egregious when it comes to Uncle Sam.

Personal Income Tax Rate – 5.75%

Capital Gains Tax Rate – 5.75%

Corporate Income Tax Rate – 6%

Corporate Capital Gains Tax Rate – 6%

Gas Taxes – 19.3 cents

Crime Rate – 2.77%

Photo Credit: La Citta Vita

9th Most Entrepreneur-Friendly State: Alabama


Alabama makes the top 10, but it is one of the few states that adds an additional tax on S Corporations — a popular business structure for small firms.

Personal Income Tax Rate – 3.25%

Capital Gains Tax Rate – 4.25%

Corporate Income Tax Rate – 4.225%

Corporate Capital Gains Tax Rate – 4.225%

Gas Taxes – 20.9 cents

Crime Rate – 4.54%

S Corporation Taxes – 3.25%

Photo Credit: Southernpixel

8th Most Entrepreneur-Friendly State: Colorado


Ray Keating of the SBE Council, who put together the data for this study, says Colorado ranks well by “not doing anything bad” in terms of high taxes.

Personal Income Tax Rate – 4.63%

Capital Gains Tax Rate – 4.63%

Corporate Income Tax Rate – 4.63%

Corporate Capital Gains Tax Rate – 4.63%

Gas Taxes – 22 cents

Crime Rate – 3.19%

Photo Credit: gregor_y

7th Most Entrepreneur-Friendly State: South Carolina


Godfather of soul James Brown was a South Carolinian and has often been called the hardest working man in show business — was it the low taxes that let papa get a brand new bag?

Personal Income Tax Rate – 7%

Capital Gains Tax Rate – 3.92%

Corporate Income Tax Rate – 5%

Corporate Capital Gains Tax Rate – 5%

Gas Taxes – 16.8 cents

Crime Rate – 4.96%

Photo Credit: Shoshanah

6th Most Entrepreneur-Friendly State: Florida


Florida keeps some of its taxes low, which balances out the taxes it has hiked up over the years. It does have fairly high personal property taxes, at 3.84%, but that’s far shy of the highest property taxes in the nation — New Hampshire at 5.33%.

Personal Income Tax Rate – 0%

Capital Gains Tax Rate – 0%

Corporate Income Tax Rate – 5.5%

Corporate Capital Gains Tax Rate – 5.5%

Gas Taxes – 34.5 cents

Crime Rate – 4.83%

Photo Credit: Karen Horton

5th Most Entrepreneur-Friendly State: Washington


The Evergreen State rounds out the top five most entrepreneur-friendly states thanks to low taxes, but if your business uses a lot of fuel, it does have one of the higher gas taxes. It also has one of the highest taxes in the nation — at 6.01% — on gross receipts.

Personal Income Tax Rate – 0%

Capital Gains Tax Rate – 0%

Corporate Income Tax Rate – 0%

Corporate Capital Gains Tax Rate – 0%

Gas Taxes – 37.5 cents

Crime Rate – 4.09%

Photo Credit: fddi1

4th Most Entrepreneur-Friendly State: Wyoming


Wyoming scores high because of low tax rates and a low crime rate.

Personal Income Tax Rate – 0%

Capital Gains Tax Rate – 0%

Corporate Income Tax Rate – 0%

Corporate Capital Gains Tax Rate – 0%

Gas Taxes – 14 cents

Crime Rate – 2.95%

Photo Credit: whatleydude

3rd Most Entrepreneur-Friendly State: Texas


The Lone Star State boasts low taxes and jumped up the annual survey’s rankings because it recently got rid of a corporate income tax that it imposed in the early 1990s.

Personal Income Tax Rate – 0%

Capital Gains Tax Rate – 0%

Corporate Income Tax Rate – 0%

Corporate Capital Gains Tax Rate – 0%

Gas Taxes – 20 cents

Crime Rate – 4.49%

Photo Credit: cjc4454

2nd Most Entrepreneur-Friendly State: Nevada


Many entrepreneurs are attracted by the bright lights and big city life of Las Vegas but Nevada overall is a win thanks to low taxes. Its crime rate, gas taxes and electric utility costs did drag it down, but it still managed to win the silver medal in the SBE Council survey.

Personal Income Tax Rate – 0%

Capital Gains Tax Rate – 0%

Corporate Income Tax Rate – 0%

Corporate Capital Gains Tax Rate – 0%

Gas Taxes – 33.1 cents

Crime Rate – 4.17%

Photo Credit: matze_ott

The Most Entrepreneur-Friendly State: South Dakota


Small firms take note – South Dakota is the most hospitable state for small businesses and entrepreneurs thanks to its how-low-can-you-go tax rates. However, it is one of a handful of states that impose an Internet access tax.

Personal Income Tax Rate – 0%

Capital Gains Tax Rate – 0%

Corporate Income Tax Rate – 0%

Corporate Capital Gains Tax Rate – 0%

Gas Taxes – 24 cents

Crime Rate – 1.85%

Photo Credit: Mykl Roventine

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