Top 5 states to start a small business

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Important points

  • North Carolina is the best state to start a small business.
  • Washington, Virginia, Colorado and Texas round out the top 5.
  • The lowest states to start a small business are Mississippi, Alaska, Louisiana, New Mexico and Hawaii.

Starting a small business can be a daunting task, but some states are friendlier to small businesses than others. To rank America’s top states for business in 2022, CNBC used 88 different metrics across 10 broad categories of competitiveness. The categories were weighted according to their importance to a small business. The categories and weight are:

  • Workforce: 16%
  • Infrastructure: 15%
  • Business costs: 14%
  • Economy: 13%
  • Life, Health and Inclusion: 13%
  • Technology and innovation: 10%
  • Business friendliness: 8%
  • Education: 7%
  • Access to capital: 2%
  • Cost of living: 2%

The five best states to start a business

Based on current data, here are the top five states to start a small business.

1. North Carolina

North Carolina moved up one spot to first overall with the highest score in Economy, #2 in Access to Capital, and #5 in Technology and Innovation. Its workforce ranks 12th and the lowest rank for the state is in Life, Health and Inclusion at 28th. The cost of doing business is 26th, falling in the middle of the field. The highest individual income tax rate in the state is 4.99% and the highest corporate income tax rate is 2.5%.

2. Washington

Washington jumped from ninth in 2021 to second this year. Technology and innovation ranked first, nationally second. It ranks 3rd in economy, 4th in workforce and 6th in life, health and inclusion. The lowest ranking for the state was cost of living at 38. It also ranks in the bottom half of states for cost of doing business at 33 and ease of doing business at 31. Washington has no income taxes (there is a 7% capital gains tax for those earning over $250,000) or corporate taxes (there is a gross receipts tax).

3.Virginia

Virginia ranked first for starting a business in 2021, but fell to third this year. Education was number one, nationally number two. It ranks 6th in terms of ease of doing business and access to capital. The lowest ranking for the state is the cost of living, which ranks 30th. Virginia is in the top 50% of all remaining categories. The highest individual income tax rate in the state is 5.75% and the highest corporate income tax rate is 6%.

4. Colorado

Colorado has moved up four places from its top spot in workforce, first in the country. It ranks 9th in technology and innovation and 11th in business and education. The lowest ranking for the state is Business Expenses, which ranks 36th. The highest individual income tax rate and the highest corporate income tax rate in the state is 4.55%.

5.Texas

Texas dropped a spot this year but is home to many wealthy businessmen like Elon Musk. First up is the workforce, which ranks second nationally. It ranks 3rd in access to capital, 4th in technology and innovation, and 8th in economy. The lowest ranking for the state is in Life, Health and Inclusion at 49. Texas has no individual income tax and no corporate income tax (it levies a gross receipts tax).

The bottom 5 states to start a business

Below are the 5 lower states to start a business:

50. Mississippi

49.Alaska

48.Louisiana

46. ​​New Mexico

46. ​​Hawaii

While Mississippi ranks first for low cost of living, it ranks last for ease of doing business, 49th for economy, 48th for technology and innovation, 47th for workforce, and 46th for infrastructure and education Alaska doesn’t fare much better, with its infrastructure and technology and innovation trailing behind. Hawaii has the highest cost of living, the highest cost of doing business, and the highest individual income tax rate in the country.

While America is considered one of the best countries in the world for starting a small business, there are big differences between each state. Interestingly, states like California and New York, known for Silicon Valley and Wall Street respectively, don’t even crack the top 10. The high cost of living and doing business makes life difficult for many small businesses in these states.

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