Best States for Small Business Taxes

If your veterinary practice is in Alaska or South Dakota, your tax burden is one of the lowest in the country. But if you call New Jersey or New York home, you’re paying twice as much in taxes. Where does your state rank on the list of the best and worst states for small business taxes?
Kerry Lengyel
Published: April 28, 2017
The tax burden is an important measure for anyone to consider when moving to a new state, but it’s especially important for small business owners.
 
Practice owners who live in states where less of their salary is going to local and state taxes can use more of their income to reinvest in their practice, add new employees, expand their client base and add new departments. 
 
Fundera, a website that offers free services to help people find affordable small business loans, used data from the IRS, the Tax Foundation and the U.S. Census Bureau to find out which states offered the best tax rates for small business taxes.
 
Researchers started with the average salary for a small business owner in the United States, which is $76,010, and then applied the maximum possible deduction for single individuals to find the taxable income for the average business owner in each state.

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This number was then multiplied by each state’s tax burden — an index that includes 26 individual tax measurements such as income taxes, property taxes and alcohol taxes — to find what the average entrepreneur would pay in state and local taxes.
 
After crunching the numbers, researchers formed a list of the best and the worst states for small business taxes. Here’s what they found. Click here to view the complete data for each state.
 
1. Alaska
Average small business owner state & local taxes: $4,930.42
State tax burden (as % of income): 6.5%
Top state income tax bracket: No state income tax
 
2. South Dakota
Average small business owner state & local taxes: $5,391.10
State tax burden (as % of income): 7.1%
Top state income tax bracket: No state income tax
 
3. Louisiana
Average small business owner state & local taxes: $5,422.16
State tax burden (as % of income): 7.6%
Top state income tax bracket: 6%
 
4. Wyoming
Average small business owner state & local taxes: $5,428.41
State tax burden (as % of income): 7.1%
Top state income tax bracket: No state income tax
 
5. Tennessee
Average small business owner state & local taxes: $5,584.58
State tax burden (as % of income): 7.3%
Top state income tax bracket: 5%
 
6. Texas
Average small business owner state & local taxes: $5,759.25
State tax burden (as % of income): 7.6%
Top state income tax bracket: No state income tax
 
7. South Carolina
Average small business owner state & local taxes: $5,877.73
State tax burden (as % of income): 8.4%
Top state income tax bracket: 7%
 
8. New Hampshire
Average small business owner state & local taxes: $5,987.03
State tax burden (as % of income): 7.9%
Top state income tax bracket: 5%
 
9. Oklahoma
Average small business owner state & local taxes: $6,011.25
State tax burden (as % of income): 8.6%
Top state income tax bracket: 5%
 
10. New Mexico
Average small business owner state & local taxes: $6,073.59
State tax burden (as % of income): 8.7%
Top state income tax bracket: 4.9%
 
Continue to the next page for more statistics.
 

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