State taxes can make or break a small business. Pass-through owners pay vastly different tax burdens depending on where they operate, with top-scoring states offering zero individual income tax and low compliance costs while bottom-tier states layer steep income taxes, high property taxes and unfavorable treatment of business deductions. MoneyGeek ranked all 50 states and the District of Columbia using 12 tax metrics to identify which impose the highest and lowest small business tax burdens in 2026.
States Where Small Businesses Pay the Most in Taxes in 2026
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KEY FINDINGS
- South Dakota, Wyoming and Florida lead the nation with "Excellent" ratings, offering zero individual income tax, no or low corporate taxes and manageable compliance costs.
- New Jersey, D.C. and California rank at the bottom with "High Burden" ratings due to steep individual income tax rates (10.75%–13.3%), high corporate rates and unfavorable treatment of federal pass-through deductions.
- Not all no-income-tax states rank at the top. Texas, Washington and Tennessee land in the "Good" or "Moderate" range once gross receipts taxes, sales taxes and property taxes are included.
- Top states score above 8.4 out of 10, while bottom states fall near or below 2.5. A small business owner earning $200,000 in pass-through income pays zero state income tax in South Dakota but over $20,000 annually in California or New York.
- North Carolina and Idaho rank in the top five despite having income taxes, outperforming several no-income-tax states thanks to flat, low rates and simple structures.
High small business tax burdens can make costs like business insurance and payroll even more important to manage. Compare small business insurance quotes to see how insurance premiums vary by state alongside tax costs. Tax burden is just one factor in choosing where to locate your business. See MoneyGeek's complete ranking of the best states to start a small business, which evaluates tax climate, cost structure, business resources, workforce quality and market opportunity.
Small Business Tax Burden by State in 2026
MoneyGeek's Overall Score represents each state's small business tax climate on a 0–10 scale, combining five pillars: individual income tax (40% weight), corporate income tax (20%), sales tax (20%), property tax (15%) and compliance/payroll taxes (5%). States with higher scores offer more favorable tax environments for small business owners.
The table below shows how all 51 jurisdictions rank on small business tax burden. States with the lowest overall small business tax burdens cluster in the Mountain West, Great Plains and Southeast, while states with the highest small business tax burdens concentrate in the Northeast and West Coast.
1 | South Dakota | 8.69 | Excellent | 10.00 | 10.00 | 5.49 | 8.00 | 7.76 |
2 | Wyoming | 8.49 | Excellent | 10.00 | 10.00 | 8.16 | 3.58 | 6.43 |
3 | Florida | 8.19 | Excellent | 10.00 | 7.20 | 6.78 | 6.44 | 8.43 |
4 | Idaho | 7.60 | Good | 7.39 | 6.85 | 7.81 | 9.26 | 6.50 |
5 | North Carolina | 7.60 | Good | 7.30 | 9.37 | 6.84 | 6.84 | 8.15 |
6 | North Dakota | 7.57 | Good | 8.02 | 6.81 | 6.66 | 8.35 | 8.39 |
7 | New Hampshire | 7.53 | Good | 10.00 | 4.77 | 10.00 | 1.42 | 7.18 |
8 | Missouri | 7.49 | Good | 7.47 | 8.73 | 5.52 | 7.80 | 9.60 |
9 | Arizona | 7.45 | Good | 8.70 | 7.73 | 3.50 | 8.17 | 10.00 |
10 | Utah | 7.44 | Good | 8.04 | 7.91 | 5.69 | 7.66 | 7.09 |
11 | Montana | 7.35 | Good | 7.58 | 4.98 | 9.80 | 6.60 | 7.48 |
12 | Alaska | 7.34 | Good | 10.00 | 3.31 | 9.15 | 4.20 | 4.48 |
13 | Nevada | 7.13 | Good | 9.48 | 6.20 | 3.46 | 8.34 | 3.21 |
14 | Oklahoma | 7.08 | Good | 6.63 | 8.83 | 4.67 | 8.39 | 9.34 |
15 | Georgia | 6.97 | Good | 7.44 | 8.09 | 6.47 | 4.67 | 7.53 |
16 | Michigan | 6.96 | Good | 7.45 | 6.60 | 7.62 | 5.18 | 7.14 |
17 | Indiana | 6.93 | Good | 5.24 | 8.33 | 6.97 | 9.01 | 8.41 |
18 | Louisiana | 6.82 | Good | 8.10 | 7.90 | 2.60 | 6.83 | 8.98 |
19 | Mississippi | 6.65 | Good | 6.55 | 8.63 | 6.06 | 4.34 | 8.80 |
20 | Nebraska | 6.56 | Good | 6.84 | 7.71 | 7.18 | 2.37 | 9.72 |
21 | Tennessee | 6.55 | Good | 10.00 | 3.89 | 3.04 | 5.58 | 6.63 |
22 | Texas | 6.48 | Good | 10.00 | 5.50 | 2.60 | 3.40 | 7.00 |
23 | Iowa | 6.41 | Good | 6.93 | 6.06 | 7.29 | 4.35 | 6.41 |
24 | West Virginia | 6.32 | Good | 6.69 | 5.79 | 5.18 | 7.14 | 7.54 |
25 | Virginia | 6.32 | Good | 5.75 | 7.00 | 7.37 | 5.58 | 6.09 |
26 | New Mexico | 6.32 | Good | 5.64 | 6.52 | 4.42 | 9.70 | 8.40 |
27 | Ohio | 6.23 | Good | 6.82 | 5.60 | 3.26 | 8.50 | 9.00 |
28 | Delaware | 6.23 | Good | 4.99 | 3.21 | 8.90 | 9.39 | 8.03 |
29 | Arkansas | 6.19 | Good | 5.98 | 7.67 | 3.46 | 7.81 | 8.16 |
30 | Kansas | 5.98 | Moderate | 6.40 | 4.84 | 5.83 | 5.44 | 9.39 |
31 | Kentucky | 5.85 | Moderate | 4.71 | 7.11 | 6.62 | 5.80 | 7.01 |
32 | Illinois | 5.37 | Moderate | 7.70 | 3.83 | 4.20 | 2.70 | 5.43 |
33 | Wisconsin | 5.34 | Moderate | 2.87 | 5.28 | 7.99 | 7.98 | 6.74 |
34 | South Carolina | 5.32 | Moderate | 4.03 | 8.21 | 5.45 | 4.03 | 7.40 |
35 | Washington | 5.31 | Moderate | 7.75 | 5.40 | 0.37 | 5.46 | 4.83 |
36 | Rhode Island | 5.28 | Moderate | 6.14 | 5.38 | 5.67 | 2.45 | 4.99 |
37 | Pennsylvania | 5.21 | Moderate | 3.86 | 5.07 | 6.13 | 7.29 | 6.66 |
38 | Colorado | 5.09 | Moderate | 4.76 | 7.14 | 4.26 | 4.08 | 5.94 |
39 | Alabama | 4.77 | Moderate | 3.54 | 6.05 | 2.97 | 7.73 | 7.89 |
40 | Maryland | 4.77 | Moderate | 4.93 | 4.71 | 4.62 | 4.08 | 6.43 |
41 | Connecticut | 4.68 | Moderate | 4.65 | 5.47 | 6.63 | 0.75 | 5.70 |
42 | Maine | 4.33 | Moderate | 3.83 | 2.91 | 7.84 | 1.79 | 7.47 |
43 | Hawaii | 3.96 | High Burden | 1.10 | 4.76 | 6.09 | 7.11 | 5.71 |
44 | Oregon | 3.84 | High Burden | 1.71 | 2.30 | 8.28 | 5.15 | 5.38 |
45 | New York | 3.41 | High Burden | 3.25 | 4.47 | 3.79 | 0.95 | 6.24 |
46 | Minnesota | 3.40 | High Burden | 1.50 | 3.67 | 4.59 | 5.76 | 5.70 |
47 | Massachusetts | 3.37 | High Burden | 1.89 | 5.06 | 6.36 | 1.42 | 2.35 |
48 | Vermont | 3.19 | High Burden | 2.18 | 3.20 | 5.53 | 0.94 | 8.62 |
49 | California | 2.40 | High Burden | 0.15 | 4.08 | 3.28 | 4.97 | 2.50 |
50 | District of Columbia | 2.40 | High Burden | 1.09 | 3.65 | 4.32 | 0.53 | 5.83 |
51 | New Jersey | 2.25 | High Burden | 0.94 | 1.95 | 5.07 | 1.42 | 5.03 |
Business owners weighing relocation or expansion can compare small business insurance quotes to see how coverage costs and tax burdens align across states.
Top 10 Best States for Small Business Taxes
The best states for small business taxes earn high Overall Scores and at least a "Good" rating, where small business owners benefit from low pass-through tax rates, simple corporate tax structures, competitive sales taxes and manageable compliance costs.
1 | South Dakota | 8.69 | Excellent | 0% individual income tax, no corporate tax, low LLC fees |
2 | Wyoming | 8.49 | Excellent | 0% individual income tax, no corporate tax, simple structure |
3 | Florida | 8.19 | Excellent | 0% individual income tax, flat 5.5% corporate rate, moderate fees |
4 | Idaho | 7.60 | Good | 5.8% flat individual rate, low property taxes, no LLC fee |
5 | North Carolina | 7.60 | Good | 3.99% individual rate, 2% corporate rate, both flat |
6 | North Dakota | 7.57 | Good | 2.5% individual rate, low property taxes, strong UI ranking |
7 | New Hampshire | 7.53 | Good | 0% wage income tax, no sales tax, moderate property taxes |
8 | Missouri | 7.49 | Good | 4.7% individual rate, 4% flat corporate rate, $0 LLC fee |
9 | Arizona | 7.45 | Good | 2.5% individual rate, 4.9% flat corporate rate, no LLC fee |
10 | Utah | 7.44 | Good | 4.55% flat individual rate, matching corporate rate, low fees |
South Dakota
South Dakota leads the nation with an 8.69 Overall Score and "Excellent" rating. It scores a perfect 10 out of 10 on both individual and corporate income tax pillars. Pass-through business owners pay zero individual income tax, South Dakota imposes no corporate income tax and annual LLC fees are just $55. Combined with a moderate sales tax structure (5.49 score) and strong property tax performance (8.00 score), South Dakota offers one of the most favorable tax climates for small businesses.
For businesses operating in South Dakota, explore the best small business insurance companies to protect against risk while enjoying low tax burdens.
Wyoming
Wyoming ranks second with an 8.49 Overall Score, also earning an "Excellent" rating. Like South Dakota, Wyoming scores a perfect 10 on both individual and corporate income tax. It has zero individual income tax and no corporate tax, with low annual LLC fees ($60). Wyoming scores 8.16 on sales tax structure and has no gross receipts tax, though its property tax score (3.58) is lower due to moderate per-capita collections and structural factors.
Florida
Florida secures third place with an 8.19 Overall Score and "Excellent" rating. It scores a perfect 10 on individual income tax with zero rate and 7.20 on corporate income tax with its flat 5.5% rate. Florida's sales tax score (6.78) reflects a 6.95% combined rate with no gross receipts tax. Its property tax score (6.44) and compliance score (8.43) round out strong performance across all pillars.
Business owners in Florida can compare small business insurance in Florida to see how insurance costs stack up alongside favorable tax treatment.
North Carolina
North Carolina ranks fourth despite having an income tax, scoring 7.60 with a "Good" rating. It scores 7.30 on individual income tax thanks to its 3.99% flat rate, one of the lowest among states with income taxes. North Carolina earns the highest corporate income tax score among all states (9.37) due to its 2% flat corporate rate, the nation's lowest. The state also conforms to the federal Section 199A pass-through deduction, adding another benefit for small business owners.
Idaho
Idaho ties North Carolina at 7.60, earning a "Good" rating. Its individual income tax score (7.39) reflects a flat 5.8% rate that's competitive among income-tax states. Idaho scores 6.85 on corporate income tax with a 5.3% flat rate. Its property tax score (9.26) ranks among the best nationally, and it charges no annual LLC fee, contributing to a strong compliance score (6.50).
10 States Where Small Businesses Pay the Most in Taxes
The states where small businesses pay the most in taxes score at the bottom of the ranking, with "High Burden" or low "Moderate" ratings. These states have the least favorable small business tax climates, often due to high individual income tax rates on pass-through income, steep corporate or sales taxes, high per-capita property taxes, gross receipts taxes or high annual LLC fees.
51 | New Jersey | 2.25 | High Burden | 10.75% individual rate, 11.5% corporate rate |
50 | District of Columbia | 2.40 | High Burden | 10.75% individual rate, high property taxes |
49 | California | 2.40 | High Burden | 13.3% individual rate, $800 LLC fee |
45 | New York | 3.41 | High Burden | 10.9% individual rate, high property taxes |
46 | Minnesota | 3.40 | High Burden | 9.85% individual rate, 9.8% corporate rate |
47 | Massachusetts | 3.37 | High Burden | 9% individual rate, $520 LLC fee |
48 | Vermont | 3.19 | High Burden | 8.75% individual rate, 8.5% corporate rate |
44 | Oregon | 3.84 | High Burden | 9.9% individual rate, 0.57% gross receipts tax |
43 | Hawaii | 3.96 | High Burden | 11% individual rate, complex bracket structure |
42 | Maine | 4.33 | Moderate | 7.15% individual rate, 8.93% corporate rate |
New Jersey
New Jersey ranks last with a 2.25 Overall Score and "High Burden" rating. It scores just 0.94 on individual income tax (10.75% top rate) and 1.95 on corporate income tax (11.5% rate, the nation's highest). New Jersey also decouples from the federal Section 199A deduction, eliminating a key federal benefit for small businesses. Its property tax score (1.42) reflects per-capita collections of $3,539, among the highest in the nation.
California
California ties D.C. for 49th place with a 2.40 Overall Score and "High Burden" rating. Its individual income tax score (0.15) is the lowest in the nation, reflecting the 13.3% top rate that directly hits pass-through business owners. California's compliance score (2.50) factors in the $800 minimum annual LLC fee regardless of profitability, burdensome for startups and side businesses. The state decouples from Section 199A and has an 8.84% corporate rate, contributing to a corporate tax score of 4.08.
In high-burden states, controlling other expenses like business insurance can help offset some of the pressure from taxes. Explore cheap business insurance options or review best general liability insurance providers to manage risk costs.
New York
New York ranks 45th with a 3.41 Overall Score and "High Burden" rating. Its 10.9% individual rate hits pass-through owners hard. Property tax collections of $3,359 per capita rank among the nation's highest. New York also decouples from Section 199A.
Minnesota
Minnesota scores 3.40 and ranks 46th with a "High Burden" rating. Its individual income tax score (1.50) reflects a 9.85% top rate, while its corporate tax score (3.67) captures a 9.8% corporate rate. Minnesota decouples from Section 199A. Its sales tax score (4.59) reflects an 8.14% combined rate, and its property tax score (5.76) indicates moderate per-capita collections.
Oregon
Oregon ranks 44th with a 3.84 Overall Score and "High Burden" rating. Its individual income tax score (1.71) reflects a 9.9% top rate. Oregon's corporate tax score (2.30) is particularly low due to both a 7.6% corporate rate and a 0.57% Corporate Activity Tax (CAT), a gross receipts tax especially harmful to low-margin businesses. Oregon has no sales tax, earning an 8.28 sales tax score, but this advantage doesn't offset the income and gross receipts tax burden. The state also decouples from Section 199A.
Business owners in high-tax states can compare business owner's policy (BOP) insurance or review workers' compensation options to control insurance expenses.
No-Income-Tax States for Small Business Owners (and Why They're Not Always the Lowest-Burden States)
Nine states have zero individual income tax on wages and pass-through business income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. These no-income-tax states for small business owners are especially attractive to pass-through entities, which represent 95% of all businesses.
The study still finds meaningful differences in overall small business tax burden among these states once sales, property, gross receipts taxes and LLC fees are factored in. While South Dakota, Wyoming and Florida all rank in the top three nationally, other no-income-tax states land in the middle of the pack.
Six of these states impose gross receipts taxes (GRT), which are business taxes levied on total revenue rather than profit. These taxes are particularly harmful to low-margin businesses because they apply regardless of profitability. Washington's 1.0% Business & Occupation tax is the highest, followed by Texas's 0.75% franchise tax and Oregon's 0.57% Corporate Activity Tax.
South Dakota | 8.69 | Excellent | 6.11% | No | $55 |
Wyoming | 8.49 | Excellent | 5.44% | No | $60 |
Florida | 8.19 | Excellent | 6.95% | No | $138.75 |
New Hampshire | 7.53 | Good | 0% | No | $100 |
Alaska | 7.34 | Good | 1.82% | No | $100 |
Nevada | 7.13 | Good | 8.24% | Yes (0.2%) | $350 |
Tennessee | 6.55 | Good | 9.56% | No | $300 |
Texas | 6.48 | Good | 8.2% | Yes (0.75%) | $0 |
Washington | 5.31 | Moderate | 9.43% | Yes (1.0%) | $60 |
Surprise Small Business Tax States in 2026
Some states perform better or worse than their reputations suggest:
- North Carolina and Idaho both rank in the top five for small business taxes despite having income taxes. Their flat, relatively low rates (3.99% and 5.8%, respectively), simple structures and conformity to Section 199A make them more tax-friendly than several no-income-tax states. North Carolina's corporate tax score (9.37) is the highest in the nation.
- Texas and Washington are no-income-tax states but land in the "Good" or "Moderate" range once their gross receipts taxes, higher sales taxes and property tax burdens are included. Texas scores just 2.60 on sales tax due to its 0.75% franchise tax (a gross receipts tax) and 8.2% combined sales rate. Washington's sales tax score (0.37) is the lowest nationally, reflecting its 1.0% Business & Occupation gross receipts tax and 9.43% sales rate.
- New Hampshire ranks seventh nationally with a 7.53 Overall Score despite being a no-income-tax state with no sales tax. Its perfect 10 score on individual income tax and sales tax offset a lower property tax score (1.42) due to high per-capita collections.
Business owners relocating to a no-income-tax state should remember that business insurance regulations and costs also vary by state. Review small business insurance options by state to compare both tax and insurance expenses.
How Business Type Affects Your State Tax Burden
The Overall Score rankings apply to a typical small business, but your actual tax burden depends heavily on your industry and business model. Different business types have different tax exposures, which can shift the practical rankings considerably.
Business owners should weight the five pillars according to their own operations when interpreting these rankings. The Overall Score provides a balanced starting point, but your specific tax exposure depends on whether you own property, carry inventory, have employees and generate revenue versus profit.
E-Commerce and Online Businesses
For purely online businesses with no physical inventory or storefronts, property taxes become nearly irrelevant. This changes the calculation for several states. Washington drops further in practical ranking despite having no income tax. Its 1.0% gross receipts tax on revenue (not profit) hits online sellers especially hard, and you can't offset it with property tax savings. Texas's 0.75% franchise tax creates similar pressure. Conversely, states with moderate income taxes but strong property tax and sales tax scores (like Idaho or Utah) become more attractive because you're avoiding their weakest pillar entirely.
Professional Services and Consultancies
Solo consultants, freelancers and professional services firms operating from home offices should focus almost entirely on the individual income tax pillar, which carries 40% of the Overall Score. These businesses rarely hold inventory, own commercial property or hire many employees. California's 13.3% top rate and New Jersey's 10.75% rate become even more punishing because you're fully exposed to their worst pillar. Meanwhile, Florida, Tennessee and Texas deliver their full tax advantage since you benefit from zero income tax without facing higher property tax burdens on commercial real estate you don't own.
Physical Operations (Restaurants, Retail and Manufacturing)
Businesses with significant physical footprints face the full tax stack: income taxes on profits, sales tax compliance, property taxes on owned or leased space, and payroll taxes on larger employee counts. For these businesses, states like New York (property tax score 0.95) and New Jersey (property tax score 1.42) become even worse than the Overall Score suggests. Per-capita property tax collections in these states exceed $3,300, directly hitting restaurant and retail operators. Meanwhile, states like Idaho (property tax score 9.26) and Indiana (property tax score 9.01) become relatively more attractive because their property tax structures favor commercial real estate.
Manufacturers and distributors with physical inventory have unique exposure to gross receipts taxes, which tax revenue rather than profit and create pyramiding effects through supply chains. Washington's 1.0% B&O tax, Oregon's 0.57% Corporate Activity Tax and Texas's 0.75% franchise tax all hurt manufacturers disproportionately because these businesses have lower profit margins and high revenue volumes. A manufacturer with $5 million in revenue and 5% net margin ($250,000 profit) pays $50,000 in Washington's B&O tax regardless of profitability, which equals 20% of net income. States without gross receipts taxes but with moderate income taxes (like North Carolina, Missouri or Arizona) become significantly more attractive for manufacturers than the Overall Score alone suggests.
How We Ranked Small Business Tax Burdens by State
MoneyGeek ranked all 51 jurisdictions using 12 tax metrics across five weighted pillars. Each metric was normalized to a 0–10 scale, where 10 is most favorable for small businesses. Our Five-Pillar Scoring Framework follows:
- Individual Income Tax (40% weight)
95% of businesses are pass-through entities that report income on owners' personal returns, making this the most critical pillar. Includes Tax Foundation individual income tax rank, top marginal rate and state treatment of the federal Section 199A pass-through deduction (which allows a 20% deduction on qualified business income). - Corporate Income Tax (20% weight)
Lower weight because only 5% of small businesses are C-corporations. Includes Tax Foundation corporate tax rank, top corporate rate and whether the state uses a flat or progressive rate structure. - Sales Tax (20% weight)
All businesses that sell taxable goods or services collect sales tax. Includes Tax Foundation sales tax rank, combined state and local rate and any gross receipts tax. Six states impose gross receipts taxes: Washington (1.0%), Texas (0.75%), Oregon (0.57%), Delaware (0.4%), Ohio (0.26%) and Nevada (0.2%). Gross receipts taxes are especially harmful because they tax revenue, not profit. - Property Tax (15% weight)
Impacts businesses with physical locations. Includes Tax Foundation property tax rank and per-capita property tax collections from Census data, which provide a standardized measure of actual burden regardless of local variation. - Compliance and Payroll Taxes (5% weight)
Includes Tax Foundation unemployment insurance tax rank and annual LLC fees, a direct cost every LLC must pay regardless of profitability.
Pillar scores were combined using the weights above to produce a final Overall Score (0–10) for each state. States were ranked 1–51 and assigned ratings: Excellent (8.0 to 10.0), Good (6.0 to 7.9), Moderate (4.0 to 5.9), High Burden (0.0 to 3.9).
This ranking focuses on state and local taxes that directly affect small business owners. It doesn't include federal taxes, personal spending taxes or city-specific incentives.
About Nathan Paulus
Nathan Paulus is the Head of Content at MoneyGeek, where he conducts original data analysis and oversees editorial strategy for insurance and personal finance coverage. He has published hundreds of data-driven studies analyzing insurance markets, consumer costs and coverage trends over the past decade. His research combines statistical analysis with accessible financial guidance for millions of readers annually.
Paulus earned his B.A. in English from the University of St. Thomas, Houston.
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