The Best and Worst States for Business Taxes in 2023

Factors That Business Owners May Want To Consider

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Before you start or move your business, it can be beneficial to look at the tax-friendliness of states you’re considering operating in. For example, if you want to relocate to a state that has consistently warm weather, you might consider Florida, which is also one of the most tax-friendly states for businesses. 

This article looks at a tax-friendly ranking of states, discusses factors that are included in the ranking, and presents some trends in state tax laws. 

Key Takeaways

  • The most tax-friendly U.S. states are Wyoming, South Dakota, Alaska, Florida, and Montana. 
  • The least tax-friendly states are New Jersey, New York, California, and Connecticut.
  • State tax friendliness is measured by comparing several types of taxes, including corporate and individual tax rates, sales and excise taxes, property taxes, and unemployment insurance taxes.  

What Makes a State Tax-Friendly for Businesses?

The Tax Foundation, a nonpartisan tax research group based in Washington, D.C., released a State Business Tax Climate Index study in October 2022. It ranks the best and worst states for business taxes to help policymakers and business leaders compare their state's tax systems against others, and it reveals the states with the best-structured tax systems. 

This study factored in five taxes that affect businesses, using a weighting factor to come up with a percentage of the total for each type:

  • 30.6% – Individual income tax 
  • 23.5% – Sales tax
  • 21.1% – Corporate Tax
  • 15.0% – Property Tax
  • 9.8% – Unemployment insurance Tax

Individual Income Taxes 

Sole proprietors, limited liability company (LLC) owners, partners in partnerships, and S corporation owners are affected by individual income tax rates and changes because they pay business income tax as part of their individual income tax returns. This process is called pass-through business taxation.


Small business owners considering different states should pay close attention to the individual income tax structure in each state. States with higher marginal tax rates (the amount of additional tax paid for each additional dollar of income) are less tax-friendly than those with lower marginal rates. Get help from a tax professional in reviewing these tax situations. 

Corporate Income Taxes

Corporations pay income tax based on corporate tax rates. For states that have corporate income tax, rates range from 2.5% in North Carolina to 11.5% in New Jersey. Twenty-nine states and the District of Columbia have one income tax rate for all corporations.

South Dakota and Wyoming are the only states that have neither a gross receipts tax nor a corporate income tax. A gross receipts tax may be instead of or in addition to a corporate income tax. This tax is applied to a company’s gross receipts with no deductions for expenses. Nevada, Ohio, Texas, and Washington all have gross receipts taxes.

Sales Taxes and Excise Taxes 

Sales tax rates are an important component of business friendliness, because low or no sales taxes encourage consumer purchases, especially in comparison with adjoining states. For example, Delaware has no sales tax so it attracts buyers from all over the Mid-Atlantic region.

States impose excise taxes on specific goods or activities, like cigarettes, alcoholic beverages, soda, gasoline, amusement activities. They are a relatively small part of state and local tax collections. 

Alaska, Montana, New Hampshire, Oregon, and Delaware have no state sales taxes but they have excise taxes, and Alaska allows localities to have sales taxes.

Property Taxes 

States impose property taxes on privately owned property of businesses and individuals, including land, cars, and business inventories. The tax system in each state is administered by localities, which calculate the rate by a percentage of the tax value of the property. In addition to real property (land and buildings), many localities and states levy taxes on personal property and equipment. 

Unemployment Insurance Taxes

Unemployment insurance (UI) (a payroll tax paid by businesses) is a joint state-federal program to provide benefits for recently unemployed workers. Every state has a UI tax, with a complex system of different rates for different industries and bases. 

Unemployment insurance taxes are a minor component of the tax-friendliness index because the rates are similar around the U.S. Because these rates are so similar, if a state changes its unemployment tax rate, it could significantly affect its ranking. Pennsylvania, for example, made improvements to its UI taxes in 2021, cutting the rate and repealing a surtax to be more competitive, increasing its rank from 32nd to 29th overall.

The Most Tax-Friendly States for Business

  1. Wyoming has no individual income tax and it’s one of only two states that doesn’t levy a corporate income tax or a gross receipts tax.
  2. South Dakota has no individual income tax, and this is the other state without a corporate income tax or gross receipts tax.
  3. Alaska levies no individual income tax or state-level sales tax.
  4. Florida has no individual income tax and it has a low unemployment insurance tax.
  5. Montana is one of two states that has no state-level sales tax.
  6. New Hampshire is the other state with no state-level sales tax.
  7. Nevada has no corporate or individual income tax, although it does levy a gross receipts tax.
  8. Utah scores high in part because it’s one of seven states that has a single lower-income tax rate and its corporate tax rate is just 4.95%.
  9. Indiana, like Utah, levies all the major types of taxes, but has low rates on broad bases.
  10. North Carolina has the lowest corporate tax rate of states who levy them.

Tennessee slipped out of the top 10 most tax-friendly states from the 2022 index, replaced by Utah in the 8th spot, and North Carolina was not in the top 10 most tax-friendly states in the 2022 index.


Most of these top 10 states don’t have a major tax, although property taxes and unemployment insurance taxes are levied in every state. However, a state can still rank in the top 10 even while levying all the major taxes. 

The Least Tax-Friendly States for Business

1. New Jersey, the least tax-friendly state for businesses, has the fourth-highest individual income tax rate in the U.S. and its corporate, sales, and property taxes are very high as well. The state’s top corporate tax rate is the highest in the nation, at 11.5%.

2. New York has the third highest individual income tax rate in the nation and it has one of the highest effective property tax rates as well. 

3. California has the highest individual top income tax rate in the nation—13.3%—and one of the highest corporate tax rates at 8.84% for corporations.

4. Connecticut has some of the highest property taxes in the nation. 

5. Maryland has a high individual income tax rate, and it’s the only state with both an inheritance tax and an estate tax.

6. Minnesota has high individual and corporate tax rates. The state’s top corporate tax rate is 9.8% as of 2021.

7. Vermont has very high property taxes.

8. Hawaii has the second-highest individual income tax rate at 11.0%. 

9. Rhode Island has a high state sales tax, and has one of the more complicated unemployment insurance tax rate structures.

10. Alabama scores poorly in part because it does not adhere to the federal definitions of individual income, which makes filing taxes more difficult for taxpayers.

Arkansas was in the worst ten states in 2022, but was replaced by Vermont, which moved from the eighth spot to the seventh spot. Hawaii moved from the tenth spot to the eighth spot, and Rhode Island and Alabama joined the list. Rhode Island replaced Louisiana.

2022 Changes and Trends in State Taxes

Many states passed legislation to reduce the corporate tax rate. Idaho, Arkansas, Pennsylvania, and Utah all reduced the corporate tax rate.

  • Arkansas lowered the highest marginal corporate income tax rate from 5.9% to 5.3% for the 2023 tax year.
  • Idaho lowered the corporate income tax rate from 6.0% to 5.8% for the 2023 tax year.
  • Pennsylvania's 2022 income tax rate of 9.99% will gradually decrease until the 2031 tax year begins, at which point the rate will be 4.99%
  • Utah reduced the corporate tax rate from 4.95% to 4.85%. This is retroactive, and took effect at the beginning of the 2022 tax year.

Although there were many tax law changes favorable to businesses, one less business-friendly measure was passed in New York City. The city now requires any business with more than $1 million dollars in sales to New York City sources to file taxes in the city.

Frequently Asked Questions (FAQs)

What are the best states for sole proprietors worried about taxes?

Sole proprietors pay their business taxes as part of their personal income tax returns, so they must pay attention to tax rates on individuals. 

One major factor in looking for the best state for a sole proprietor business is whether there is a state income tax and how high it is. Eight states have no tax on earned income, while at the other end of the tax spectrum are states with income tax rates as high as 13.3% (California), 11% (Hawaii), 10.9% (New York), and New Jersey (10.75%).

Which states have the best property tax rates for residents?

Anyone who owns property, including land, cars, and business inventory, must pay property taxes to their locality based on the state tax rate and the value of the property. The states with the lowest effective property tax rates are Alabama, Tennessee, Arkansas, Oklahoma, Louisiana, and Delaware. In comparison, Maine, Vermont, New Jersey, New Hampshire, New York, and Connecticut have the highest effective property tax rates.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Tax Foundation. "2023 State Business Tax Climate Index."

  2. Tax Foundation. "State Corporate Income Tax Rates and Brackets for 2022."

  3. Tax Foundation. “2022 State Business Tax Climate Index.” Page 4.

  4. Tax Foundation. "2022 State Tax Changes Taking Effect July 1, 2022."

  5. RSM. "State Income Tax Law Changes for the Third Quarter of 2022."

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