Individuals launching small businesses in the United States may have dramatically different experiences depending on where they are located. Each year, various policy groups and news organizations publish lists of the states that are the most and least “business-friendly.”
Interestingly, a state that is deemed business-friendly may have an adjacent neighbor that’s regarded as unfriendly to businesses. And although the specific state rankings may vary from one list to the next (often based on the criteria the judges use to make their determinations), there are clear trends. The following information highlights some of the features that impact whether or not a particular state is welcoming to those wanting to start a business.
Tax rates factor prominently into virtually every assessment of states’ business friendliness. States with no income tax (think Alaska, Florida, Nevada, Texas, Washington, and Wyoming) typically get high marks with small business advocates. In addition, an unsuspecting state like South Dakota fares well on these lists, because in addition to having no state income tax, it has no individual capital gains tax, no corporate income tax, no corporate capital gains tax, and no estate tax.
In contrast, states like New York generally get poor marks, because they have incredibly high individual income tax rates, high unemployment insurance taxes, and some of the most expensive property tax rates in the nation. The take-away is obvious: a state that can collect revenue without impacting the tax burden of individuals and companies will have an advantage over states that have across-the-board higher taxes.
#2 Employment/Labor Laws
Business owners generally react favorably to right-to-work states. In a state with right-to-work legislation on the books, labor unions cannot require employees to pay a fee to a union as a condition of employment. Some would argue that businesses in right-to-work states face a reduced likelihood of union interference in the employee/employer relationship, thereby potentially saving companies a great deal of money.
In contrast, opponents of the right-to-work philosophy argue that labor unions serve a noble purpose by protecting the rights of workers, many of whom would otherwise have no voice or bargaining power. Regardless of one’s personal views, it’s no secret that states that have less labor union activity score higher when measuring business friendliness. And although the location of a state isn’t necessarily an accurate predictor of its business friendliness, a clear regional trend exists in the right-to-work context. As the map below indicates, virtually all states in the southeast have right-to-work laws, while almost all states in the northeast do not.
#3 General Business Regulation
Observers often regard states that have strict regulations on business owners in terms of environmental compliance, employee health and safety standards, licensing requirements, and land use (including California, Rhode Island, New York, Hawaii, and Vermont) as unwelcoming to small businesses. Of course, considering statistics like that out of context could be misleading. For example, a state with a complete laissez-faire approach to regulation may receive high scores from business advocates, but on closer inspection, those states might have polluted water, rampant unsafe working conditions that lead to routine employee injuries, or loose licensing requirements that could lead to unqualified individuals engaging in business that puts the public at risk.
#4 Economic Status
States that have a strong economy and relatively low cost of living get a boost in these contests. In addition, states with inexpensive infrastructure costs and lower labor costs also fare well. This sometimes results in an advantage to less populated states, like Idaho, Utah, and Oklahoma. In contrast, larger states where the cost of living is high, such as California and New York, get low marks.
Although relocating to a more business-friendly state might not be on your radar, understanding how your state compares to others with regard to these factors may help as you map out the plans for your new business venture.
Guest contributor Erin Schwartz runs social media and marketing programs for 123Print.com. 123Print offers customizable print products for business and professionals. You can get everything required to market a business, including the ability to make your own business cards and design other promotional items.