Business owners often complain about the taxes they pay in their state. How much does it really cost them to run a business in each state? State tax rates vary significantly. For example, Texas imposes a personal income tax rate of 3%. On the other hand, California has no corporate or individual income tax at all. There is no federal law mandating states to adopt a uniform tax system. Instead, each state sets its own tax policy. State tax laws change frequently, so these numbers can be unreliable. With that in mind, we take a peek at the current state taxes on business owners that you should be aware of.
States With the Highest Taxes on Business Owners
According to the Tax Foundation’s most recent report, there are currently 47 U.S. states with an overall combined state and local tax burden (including both income and sales) that exceeds 15% of total economic output. The average state and local tax burden across all 50 states was 13.8%.
The top 10 highest-taxing states were:
1. New York – 14.2%
2. Connecticut – 14.1%
3. Maryland – 13.6%
4. Massachusetts – 13.4%
5. Illinois – 12.7%
6. Hawaii – 12.5%
7. Oregon – 12.3%
8. Rhode Island – 12.0%
9. New Jersey – 11.9%
10. New Hampshire – 11.8%
Tax Policies for Business Owners
Some states offer more favorable conditions than others for businesses. In fact, some states have special programs designed specifically to help small businesses grow and thrive. These include:
Income tax credits for hiring new workers
Sales tax exemptions for certain purchases made by manufacturers
Property tax relief for commercial property
Exemption from real estate transfer taxes
Eligibility for low-cost loans
Tax reform in the United States
In recent years, many politicians have discussed tax reform. However, most proposals focus only on reducing government spending rather than reforming the tax code itself. Some politicians believe that tax cuts will lead to increased growth and job creation. Others argue that cutting taxes will result in less revenue coming into the government. In fact, a few politicians even claim that tax cuts will expand the employment bracket and increase wages, as well as boost the economy at large.
A number of economists disagree with this view, arguing that tax cuts may cause recessions if not accompanied by other reforms such as deregulation. They also note that when the government spends money, it tends to spend it inefficiently. Therefore, cutting taxes would reduce the deficit. Also, tax cuts tend to disproportionately benefit high earners who already pay a large share of taxes.
State taxes on business owners should not deter you from starting your own. If anything, they can actually help you succeed. As long as you keep up with the ever changing rules, and pay attention to what’s happening in your area, you should be able to avoid any major problems. Remember, however, that every state has different rules, regulations, and laws. It is important to do research before expending in your venture – this applies across the board, be it you’re opening a clothing store or on entire online casino, tax research is necessary!
What do I need to know before starting my business in one of these states?
Most of the states listed above impose a fairly high tax rate. If you plan to start your business in one of these locations, it’s important to understand how the state’s tax structure works.
Which states charge the lowest taxes on business owners?
Several states have no income tax. Examples include Alaska, Arizona, Florida, Iowa, Kansas, Maine, Michigan, Minnesota, Nebraska, North Carolina, Ohio, Oklahoma, Pennsylvania, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin, as well as Wyoming.
Is it possible to combine two or more of these states together to form a single location?
Yes. For example, California has a relatively high income tax but also offers numerous benefits for entrepreneurs. As another example, Washington D.C. is a federal district which does not charge an income tax. As such, both locations are great places to locate your business.