No matter where you live, the state where you register and build your business can make a substantial difference in how much you pay in taxes. And there’s more to consider than just tax rates alone: Location and jurisdiction also affect how efficient or simple your business finances can be, and some states provide greater financial protections than others.
With this in mind, let’s look at the top U.S. states for business formation, considering both tax advantages and other factors that could help or hurt your business.
How to evaluate a state’s tax advantage
Many available resources about states with tax advantages focus exclusively on state individual income tax rates. They ignore business taxes (corporate tax rates, sales tax rates) or the many other factors that can encourage or discourage business success, like business-friendly policies and efficient processes free of red tape.
It can be tricky to track down clear and comprehensive information on where to start or register a business. Start with these big-picture considerations:
No state income tax vs. low overall tax burden
Eight U.S. states don’t have an income tax at all:
- Nevada
- Wyoming
- South Dakota
- Texas
- Alaska
- Tennessee
- Florida
- New Hampshire
This may make it seem like an easy choice: Living or registering your business in one of these states will lead to tax savings. Right?
The reality is a bit more complicated.
No personal state income tax matters when filing your personal taxes. For many small startups and sole proprietors whose businesses are pass-through entities, this is the rate that matters most. But it’s not the full picture.
Every state needs to collect revenue, so those with no income tax tend to make up that shortfall somewhere else. Sales taxes, higher property taxes, and various forms of corporate taxes could affect your overall tax burden even with low or no personal income tax.
So pay attention to a state’s overall tax burden, not any single rate. You may also want to consider what happens as your business grows. For example, if you reform as a C corp, will corporate income taxes change your decision?
Understanding tax exporting and its benefits to residents
Tax exporting is when businesses and individuals export their tax payments from the state where they live or work to another state.
Alaska is an example. Its residents do pay certain types of state taxes, but a large portion of the state’s tax revenue is on oil extraction. Out-of-state companies pay taxes on the natural resources they extract, improving Alaska’s bottom line. On the literal opposite end of the country, Florida brings in significant tax revenues from tourists.
Both of these states charge no personal income tax, in part because of how much revenue they bring in through tax exporting.
Businesses may benefit from tax exporting situations as well. By using a virtual address to locate a business in a tax-advantaged state, many business leaders, founders, and owners pay a lower effective tax rate than they would in their state of residence.
Other factors that influence business friendliness
Depending on your business’s size, industry, and market, you may have other considerations beyond the headline tax numbers. Ask questions like these in the areas that matter to your business:
- Regulatory simplicity: Does the state make it easy to do business, or are there additional regulatory hurdles that wouldn’t be a problem in another state?
- LLC fees: What does it cost to register an LLC? Are there any recurring fees?
- Recurring compliance: Will you take on time-consuming or costly compliance concerns?
- State-specific programs: Does the state offer any meaningful programs or grants for small businesses, job creation, or specific skills or industries?
- Access to capital, incubators, etc.: Are there any state- or region-specific incubators? Does the state or city have an active venture capital scene?
Top states with tax advantages
To help you narrow down your list of possible states, we’ve compiled helpful information on 10 states worth a closer look based on tax advantages, overall affordability, attractive business climate, and other strategic benefits.
Texas (Dallas, Houston)
Texas is a highly attractive business-friendly state for several reasons. No personal income tax is a big draw, especially for entrepreneurs, LLCs, and solo business owners. These same audiences also benefit from favorable LLC setup conditions.
Texas is also home to several major markets and business hubs, including Dallas and Houston. Austin is emerging as a sort of Silicon Valley 2.0 with a healthy environment for tech startups and online services firms.
Texas is an interesting example of tax exporting as well for businesses that use a virtual address for their taxes. State-level property tax rates in Texas are notably high (one of the trade-offs of having no income tax). By virtually establishing your business in Texas while living and working in a state with lower property taxes, you may be able to save on both sides (no Texas income tax and low property tax where you live).
Nevada (Las Vegas)
Nevada has no corporate or personal income tax, enabling businesses of all types and structures to enjoy the lowest tax burden possible and save compared to most other states.
The unobtrusive, low-friction business environment makes it easier to get started in Nevada, especially when you work with Stable. We help businesses simplify their business formation and mail management processes using business-friendly virtual address and virtual mailbox services.
Get started now with a secure virtual mailbox in Las Vegas: Learn more
Tennessee (Nashville)
Nashville is a legitimate business hub with a notable startup scene, one that has seen marked growth in recent years. Statewide, Tennessee has never had a state income tax in the traditional sense, but until 2021 the Hall tax (on interest and dividend income from investments) discouraged some investors and high-income individuals from operating in the state. Now that the Hall tax is no more, Tennessee is once again completely income tax free for individuals.
As a result, Tennessee is an attractive location for LLCs that will be taxed as individuals. Low cost of living helps businesses keep operational costs down as well.
Hidden gem states with competitive tax structures
Our next set of four states are often overlooked in the discussion of best states for tax advantages, but each one has something compelling to offer either in tax or business benefits. Remote workers and service-based LLCs especially will find a lot to like about these locations.
Indiana (Indianapolis)
Indiana’s flat income tax is attractive for its simplicity, and property taxes are low throughout the state (especially outside the Indianapolis metro), leading to overall low taxes.
With a low cost of living, abundant land, and plenty of natural beauty, Indiana attracts remote workers and distributed teams as well.
North Carolina (Charlotte)
North Carolina is a diverse state in every sense, with something to offer nearly every business sector and personal preference. The state’s tax policies include low corporate tax rates that attract startups, S corps, and C corps. The state is also home to several research and business hubs (including Raleigh’s Research Triangle and Charlotte’s tech and finance scene).
North Carolina is strategically situated on the East Coast as well: I-85 takes people and freight south to Florida and north to DC and beyond. If you’re looking for access to the East Coast with a lower cost of living and low corporate taxes, North Carolina is worth a closer look.
Colorado (Denver)
Like Indiana, Colorado has a flat income tax that simplifies taxes for many individuals and businesses. Unlike Indiana, Colorado has, well, the Rocky Mountains. Cost of living may be higher in the Centennial State, but the natural beauty and access to winter sports are big draws.
Colorado is also home to a vibrant remote work ecosystem and has startup incubators in Denver and other major cities.
Ohio
Don’t knock it till you try it: Ohio is an underrated gem for product- and service-based businesses. Taxes in the state are moderate, but the state offers strong support to LLCs and small businesses. Cost of living varies across the state, but even in the priciest metros (Cincinnati and Columbus), you’ll have an advantage over similarly situated cities on either coast.
States with higher tax burdens but strategic appeal
Next up are a few high-tax states that offer certain benefits not found with lower tax state governments. For some businesses, these advantages are compelling enough to offset a higher tax burden. Market access, deep investor networks, and livability make these destinations an appealing choice for some business owners.
California (Los Angeles, San Diego)
California is expensive in virtually every conceivable way. Taxes are high and cost of living in most areas is through the roof. The state is also known for high levels of regulations and red tape.
Still, businesses continue to flock to the state for a variety of reasons. Silicon Valley continues to attract tech companies and startups, while creatives flock to Hollywood and LA for obvious reasons. And California dominates venture capital markets, with nearly 60% of all VC capital going to California-based businesses.
A word of caution to entrepreneurs and startups considering California: Maintaining compliance as a solo or small entity can be quite difficult. Here’s how Stable can help.
New Jersey (Union City), Connecticut (Stamford)
Still the center of finance, media, diplomacy, and business more broadly in the USA, New York is a crucial market and a center of power. Locating your business close to New York City can offer advantages without the complexities of New York state tax code (or the steep real estate prices in nearly every corner of every borough).
Union City, New Jersey, is just across the water from the Big Apple, and Stamford, Connecticut, is just a short train ride away from Manhattan. Either of these markets offers proximity to NYC, which may improve business prospects or open doors to investors and partners.
That said, corporate tax rates are actually higher in New Jersey and Connecticut than those in New York.
Also noteworthy: Business formation doesn’t require living in the state. This matters if you’re trying to avoid the high cost of living, but also makes a virtual address in a higher tax jurisdiction a more strategic move than a physical location (unless the nature of your business demands one).
Minnesota (Minneapolis), Oregon (Portland), Maryland (Baltimore)
In contrast to the rest of this list, these three states are less attractive than others. Higher individual tax rates in these states may discourage some entrepreneurship.
However, remote-first entrepreneurs who live in these states are great candidates for forming their LLCs out of state. Doing so allows you to remain living where you are and enjoy the perks of a more tax-advantaged state for your business.
What state should you choose for your business?
While tax burden is a big factor in selecting a location (physical or virtual) for your business, taxes alone don’t paint the full picture. Which state is right for your business depends on these additional factors:
- Where you live (if physical proximity matters)
- How your business operates
- What kind of support you need
- The level of compliance you're prepared to manage
Use the questions below as a decision guide to narrow down your state search.
Where do you live and operate from?
First, consider where you live, where you operate your business from, and where your business has a physical presence (if any).
For most remote workers, digital nomads, and owners of digital-first businesses, forming the business in a state where you don’t live (or work) is acceptable, often strategic. It can deliver the kinds of advantages we’ve covered here. But you must do this the right way to avoid tax or legal complications
If your business has a physical presence in one or more states (retail, warehouse space, etc.), then this presence may also affect your decision-making. Registering in another state may avoid or lower some taxes, but it could also add unnecessary complexity.
Where are your customers located?
Next, evaluate where your customers are. Customer location can impact sales tax nexus, which can affect your decision. Forming in a customer-heavy state may simplify aspects of your compliance, but in some cases locating in a separate tax-advantaged state produces substantial value.
How much compliance are you willing to manage?
Some states, like Nevada, are more hands-off in terms of business formation and compliance. Setting up a business is easier, as is staying compliant year after year.
Other states, like California, have more onerous reporting requirements and/or higher filing and recurring fees.
No matter which state you choose, Stable reduces this load, helping you maintain compliance with less effort. And when you choose a low-friction state for your Stable virtual address, our service shines even more.
Are you planning to raise capital or hire?
If you plan to raise funding, hire skilled employees, or even go public down the road, certain states that don’t offer compelling tax rates may still be the stronger choice thanks to specific advantages. For example:
- Delaware is the top choice for the majority of publicly traded companies thanks to a stable business law infrastructure.
- California provides access to deeper pools of tech talent and closer proximity to venture capital.
On the other end of the spectrum, bootstrapped or solo founders who don’t need this kind of access may benefit more from lower-cost states, keeping more of their hard-earned revenue.
The best states with tax advantages aren’t always obvious
Choosing the right state for business formation isn’t as straightforward as it might seem. Low or even 0% state income tax sounds like the obvious right choice, but it doesn’t give a full picture of a state’s overall tax burden. Other factors also play into the decision, like proximity to capital and talent, regulatory complexity, and business formation costs.
Wherever you decide to form your business, Stable is here for you every step of the way. We’ll guide you through the process of changing your business address and filing in your new state, and we’ll even handle the paperwork for you. Plus, you gain access to modern virtual mail management and address services.
Choose your new address to get started today!
