13 Best States for Starting a Small Business

Location matters more than ever for small business success in America. Recent data from the Bureau of Labor Statistics (BLS) shows dramatic differences in business survival rates across regions, with some locations offering a nearly 15 percentage point higher success rate than others. The right state can provide tax advantages, growth opportunities, and support systems that significantly impact your business's chances of success.

Smart entrepreneurs look beyond just population size or major cities when choosing where to launch. Some unexpected states offer compelling combinations of low costs, business-friendly regulations, and economic incentives. Your choice of location affects everything from your tax burden to your ability to find qualified employees.

This guide analyzes the most business-friendly states based on key success factors like tax climate, operating costs, and growth potential. You'll discover which states provide the best environment for different types of businesses. We'll examine tax rates, regulatory frameworks, and available resources to help you make an informed decision about where to start your venture.

Top 5 States for Starting a Small Business

Small business owners across America increasingly choose these states for their new ventures. Each location offers entrepreneurs unique advantages for startup success, including affordability and business support. 

1. Georgia

Georgia combines Southern hospitality with modern business advantages, making it particularly attractive for tech startups and small manufacturers.

What makes this state great for starting a small business:

• Corporate tax rate fixed at 5.39%
• Flat personal income tax rate of 5.49%
• Fifth-lowest cost of living in the U.S.
• Affordable incorporation fees under $150
• Active venture capital community in major cities
• Strong business growth in technology sectors‍
• Strong skilled workforce pipeline, as it's home to University of Georgia (UGA) in Athens‍
• Fair Business Practices Act (FBPA) prohibits legitimate businesses from unethical practices, such as misrepresentation and fraud

2. Colorado

Colorado's blend of outdoor lifestyle and urban innovation creates an ideal environment for both tech startups and traditional small businesses.

What makes this state great for starting a small business:

• Corporate tax rate set at 4.4%
• Flat personal income tax system, also at 4.4%
• Business tax incentives for rural development‍
• Tax incentives for clean energy businesses
• Consistent business growth in tech sector‍
• Strong skilled workforce pipeline, as it's home to the University of Colorado Boulder (CU Boulder)

3. Montana

Montana's lack of sales tax and abundant natural resources attract entrepreneurs seeking tax advantages and quality of life benefits.

What makes this state great for starting a small business:

• Corporate tax rate of 6.75%
• No state sales tax 
• Progressive personal income tax up to 5.9%‍
• Cost of living near the national average
• Affordable rural real estate 
• Strong skilled workforce pipeline, as it's home to Montana State University (MSU) in Bozeman‍
• Montana Unfair Trade Practices and Consumer Protection Act protects businesses from deceptive and unfair trade practices

4. Oklahoma

Oklahoma's low operating costs and energy sector opportunities provide unique advantages for small businesses in both traditional and emerging industries.

What makes this state great for starting a small business:

• Corporate tax rate of 4%
• Progressive personal income tax up to 4.75%
• State sales tax of 4.5% plus local rates
• Second-lowest cost of living in the nation‍
• Five-year Ad Valorem Tax Exemption for manufacturing businesses
• Strong skilled workforce pipeline, as it's home to the University of Oklahoma (OU) in Norman‍
• Oklahoma Consumer Protection Act (OCPA) provides remedies for businesses harmed by unfair competition

5. North Carolina

North Carolina's Research Triangle and growing tech sector create opportunities for both traditional businesses and innovative startups.

What makes this state great for starting a small business:

• Corporate tax rate of 2.5%
• Flat personal income tax rate of 4.5%‍
• State sales tax of 4.75% plus local rates
• Active venture capital in Research Triangle‍
• State incentives for tech businesses‍
• Strong skilled workforce pipeline, as it's home to the University of North Carolina at Chapel Hill (UNC) and Duke University in Durham‍
• North Carolina Unfair and Deceptive Trade Practices Act (UDTPA) protects businesses from unfair or deceptive trade practices

8 other great states for starting a small business

In addition to the top five states we've explored above, many other states offer good business climates and supportive environments for new businesses:

1. North Dakota boasts a favorable business climate due to its low cost of living and corporate income tax (4.31% at most), supporting new business growth.
2. Texas stands out with no corporate income tax. However, they do impose gross receipts taxes, which may negatively impact profits. 
3. Florida appeals to new businesses with no state income tax, offering a competitive business climate for startups.
4. Utah combines a strong business climate and a low corporate tax rate of 4.55%, attracting many new businesses to the region.
5. Delaware is known for having no state sales tax, making it ideal for new business formations. This can make businesses more competitive, potentially attracting customers from neighboring states where sales tax is higher.
6. Wyoming provides a business-friendly climate with no corporate or individual income tax, welcoming new businesses.
7. South Dakota supports new businesses with no corporate income tax.
8. Idaho offers a competitive corporate income tax rate of 5.8% and a growing economy, ideal for new businesses looking to thrive.

What makes a state business-friendly? 

A state's business environment is a key factor in business survival rates across America. The Tax Foundation and BLS track specific metrics that reveal how different states support business growth and development.

Factors that create a business-friendly climate include:

• Competitive business costs. Affordable costs for real estate and operations help businesses maintain profitability and sustainability.
• Consistent economic indicators. Reliable economic indicators demonstrate strong business survival rates, giving new businesses confidence to invest.
• Robust business support resources. Beyond the Small Business Administration (SBA), robust local resources provide critical support to help businesses thrive.
• Clear state programs. State programs offering clear guidance and assistance can simplify the process of starting and growing a business, as well as getting state funding.
• Skilled workforce. A workforce equipped to meet local business needs strengthens the foundation for sustained growth and success.
• Accessible financial sector. An active financial sector with accessible funding options empowers businesses to expand and innovate.
• Protective business laws. Laws that safeguard business interests create a secure environment for businesses to grow and succeed. Consumer protection laws foster trust, encourage fair competition, and create a stable environment for businesses to thrive.
• Local tax policies. Tax policies encouraging business growth and reinvestment are essential for fostering a healthy business environment.

The most business-friendly states excel in multiple categories, creating an environment where small businesses can thrive. Let's take a closer look at how state tax policies play a role in making a state business-friendly: 

Corporate tax rate

The corporate tax rate is the percentage of a company's profits that must be paid to the government in taxes. This rate varies by state and significantly impacts a business's overall expenses. 

For small businesses, a low corporate tax rate can be a major advantage. Lower taxes mean more capital stays within the business, allowing owners to reinvest in growth, hire employees, and manage operational costs more effectively. However, it’s important to note that this rate typically applies to C-corporations, not to LLCs, partnerships, or S-corporations, which are often taxed as pass-through entities.

For entrepreneurs just starting out, especially those forming LLCs, partnerships, or S-corporations, this rate may not be immediately relevant. However, as the business scales and transitions to a corporate structure, the corporate tax rate becomes a critical factor, influencing profitability and growth strategies.

Personal income tax rate

The personal income tax rate is the percentage of an individual’s income that is paid to the government. For small business owners, especially solopreneurs operating sole proprietorships or partnerships, the personal income tax rate is more impactful because business income is taxed as personal income, directly affecting their take-home earnings. In states with low or no personal income tax, business owners keep a larger portion of their income, which can be reinvested into the business or used for personal financial stability. 

Lower personal income taxes also enhance a business’s competitive edge, potentially attracting customers from nearby states where taxes are higher, as customers may be drawn to lower overall costs. This makes such states particularly appealing for entrepreneurs aiming to grow their customer base and increase profitability.

Get help launching your business with Upwork

Finding the best state to start your small business can set you up for long-term success. Each state has unique strengths, from supportive tax policies to business-friendly environments that make entrepreneurship a smart move. Your business plan should include location as a key factor since it can impact costs, hiring, and access to resources. When you pick the right state, you increase your chances of thriving in a competitive market.

Ready to launch? Consider using Upwork to connect with skilled professionals who can bring your vision to life. Hire business consultants on Upwork to guide your startup journey. If you're a professional looking to help other businesses succeed in their ventures, you can also find business consulting jobs on Upwork.

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‍Upwork does not provide tax or legal advice. Each reader and company should take the time needed to adequately analyze the laws that apply to their business endeavor. Each state’s laws are different, so be sure to consult a local attorney so they can explain your state’s rules and regulations to you before making a decision.