Guide to Small Business Finances in all 50 States
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Managing your business finances can be a challenge for any small business owner. The most important tip we can give to any small business owner is to educate yourself in understanding the fundamentals needed to run a business, like doing simple accounting tasks, applying for a loan or drafting financial statements. Applying this knowledge to your day-to-day tasks is an incredibly important aspect of sound money management. These are some basic tasks that can be needed for your business to grow, but financial framework, from taxes to loan options, in each state varies. In this article, we will explore some of the key aspects of each state.
More than 80% of entrepreneurs start off their business without any commercial loans or debt financing. For those who do not have other financing options available to them such as savings, friends and family members, informal investors, or home equity loans, many seek financing from commercial lenders. However, this can often be the result of small business owners not knowing all of the different loans that are available to them.
Many states offer specific loan and grant incentives that are designed for specific industries and needs within the state. As such, before looking to find a location and funding for your business, it is important you have a strong, integral understanding of the needs your business will meet and the functions and operations you will be performing. Having a clear idea of your goals and mission will enable you to take advantage of some of the very specific loan programs states offer through their community and economic development resource offices. Getting access to some of these programs can be an incredibly lucrative jumpstart for any startup business.
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
California has been known as one of the best states for starting a business for some time. While the typical American thinks of Silicon Valley and Los Angeles as the premier startup destinations, there are many more locations and opportunities to start a thriving business . Biz2Credit annual list of Top 25 Small business Cities in America identified San Jose as the "Best Small Business City in America". Although real estate industry experts say suburban markets are booming because city dwellers want to escape the population density of big cities and are able to work from home, new research highlights that strong economic fundamentals in these big cities keeps them vibrant and attractive for small business. San Jose, CA, a major hub for the technology industry, has benefitted and maintained a robust economy for small businesses despite the pandemic
Unsurprisingly, California ranked as the number one state for venture capital funding in 2018, and they did so by a large margin at over $11 billion. Beyond that, California has a thriving economy centered across various industries, from tourism to technology to agriculture to film. This means the state is well diversified.
There are some downsides to California though. They are known for their high taxes, and the cost of living, particularly in major cities like Los Angeles and San Francisco is extremely high relative to the rest of the United States. They also have relatively high annual fees for small businesses. However, if you see a strong opportunity to start a business, California is certainly a place with a long history of small business success.
Miami, Florida, named No.2 on Biz2Credit's annual list of Top 25 Small business Cities in America, continues to attract small business owners . Their vibrant and upcoming economy, bolstered by a wide array of industries, including tourism and commercial real estate, have made it a premiere destination for small businesses. Plus, the state and local governments haven't shied away from helping provide business loans, offering some of the best program out of any U.S. state. Of particular note is the grants and assistance programs offered by Miami-Dade County, which focus on providing small businesses opportunities to secure funding through various avenues. The potential for future economic growth in Miami, and Florida in general, makes it an incredibly business friendly atmosphere.
Beyond that, Florida has no personal income tax, a low cost of living, and, in 2018, it ranked fifth in the nation for venture capital funding according to U.S. News, with startup small businesses receiving in excess of $511 million in seed capital. That is quite an impressive sum, and a great opportunity for small businesses to tap into!
Florida is like most states in that it has a corporate income tax, but unlike many states in that it does not have any franchise or privilege tax generally applicable to businesses. Florida does not have a personal income tax. Thus, for the most part, unless your business is a traditional corporation (C corporation), neither your business's income nor its net worth will be subject to state taxation.
To learn more about about small business financing in Florida, check out this in-depth blog from Biz2Credit on Florida small business loans.
Massachusetts has a flat rate personal income tax of 5.05%, making it one of the highest in the country. This can be a downside for passthrough entities. However, the state is still a strong location for businesses, as, similar to New Jersey, it is densely populated and has a multi-pronged economy, supported by a number of strong industries.
For traditional corporations (C corporations), the corporate excise tax generally is the sum of two amounts:
- a tax of $2.60 per $1,000 of the greater of either taxable Massachusetts tangible personal property or taxable net worth; and
- an 8.00% tax on income attributable to Massachusetts.
There is a minimum excise tax for corporations of $456.
The amount of corporate excise tax that an S corporation generally is required to pay depends in part on the corporation's gross receipts. More specifically:
- If an S corporation's gross receipts are less than $6 million, the corporation owes a tax of $2.60 per $1,000 of either taxable Massachusetts tangible personal property or taxable net worth.
- If an S corporation's gross receipts are $6 million but less than $9 million, the corporation not only owes the latter amount based on property or net worth, but also owes a tax of 1.93% on its gross receipts.
- If an S corporation's gross receipts are $9 million or more, the corporation not only owes the foregoing amount based on property or net worth, but also owes a tax of 2.9% on its gross receipts.
In addition, S corporations, like traditional corporations, are required to pay a minimum excise tax of $456.
These taxes can be discouraging, but, as seen, there are states with higher taxes.
4. New York
It will come as no shock that New York City is one of the best cities to start a small business. After all, the city has been the business capital of the world for over a century, and is home to many of America's largest financial service firms, banks, and law practices. But New York City isn't the only place in New York where you can start a small business. New York is actually a very large state, and while the hustle and bustle certainly takes place within Manhattan, there is opportunity well outside of it. Naturally, New York, largely on account of the city, ranked third in the nation for venture capital funding in 2018, which sets New York apart as a great location for startups looking to draw attention to themselves.
New York also has a strong support system for entrepreneurs and small business owners, starting with their New York State Small Business Develop Centers. These centers provide businesses with free advising and assistance across an array of business needs and functions. New York also offers the New York City Capital Access Loan Guarantee Program, which is run by the New York City Economic Development Corporation and provides small businesses with less than 100 employees access to lines of credit. Opportunities like these set New York apart from other U.S. states, and show their commitment to facilitating small business growth. That said, it is important to remember that many state and federal loan programs still require businesses and their owners to have a strong credit history, so your decision on where to open a business should never be based solely on funding opportunities within the state.
However, New York suffers from a typical cornerstone of the major United States cities - a high cost of living. This not only makes it more expensive for you, as a small business owner, to live comfortably, but it also makes it so that your business will have to pay its employees more, especially if you want to attract high quality talent. Taxes are also relatively high. If you factor in these expenses, there is no reason why New York City can't be a strong option for you.
5. New Jersey
New Jersey is another state where small businesses can thrive. The state itself benefits strongly from its location next to New York City, and the opportunities for small businesses are diverse and varied. In addition, New Jersey offers an incredible array of financing programs for small businesses to take advantage of. Plus, in 2017, Biz2Credit found that New Jersey business owners had the highest loan approval rate in the country - 23.4%! That is more than 4% higher than the next closest state, New York, which had a loan approval rate of 19.0%.
New Jersey is also one of the most densely populated states in the nation. This can be incredibly beneficial for small businesses, as they have access to a large group of consumers and customers in a relatively small area. This increases can increase a businesses ability to build and grow a strong and loyal customer base, the foundation for any sound business.
Particularly helpful for small businesses in New Jersey is theNew Jersey Business Action Center (NJBAC). This state-level business advocacy organization is a first of its kind business assistance program, which is free for all of New Jersey's small businesses. Professionals at the center can help businesses reach state-level officials, navigate regulations and business codes, facilitate business interactions, and more. The downside is that, like its neighbor New York, personal income taxes in New Jersey are high, and the cost of living is not low. Beyond that, the effective property tax rates are the highest in the nation.
Pennsylvania can be a good location for a small business as long as you are not planning on organizing your company as a corporation. Pennsylvania's corporate net income tax has a flat rate of 9.99%, making it one of the highest corporate tax rates in the country.
Favorable aspects of Pennsylvania's business environment include the Pennsylvania Business One-Stop Shop, which was started in 2018 under Governor Tom Wolf. This program is similar in many ways to the New Jersey Business Action Center, and focuses on helping guide developing businesses through the many stages toward success.
Another beneficial resource in the state is the Pennsylvania Department of Community and Economic Development. This government organization works closely with small businesses to help them secure financing through the various state loan incentive programs.
With a statewide personal flat rate income tax of 3.07%, the tax situation could be better but it could also be much worse. In light of this, taxes aren't typically a major concern for businesses looking to enter Pennsylvania, particularly pass through entities like LLCs and sole proprietorships. However, as already mentioned, the corporate net income tax is incredibly high. The cost of living is also fairly reasonable when compared to other similar states. This means that your business won't be as far-stretched when it comes to paying employees.
7. South Dakota
In South Dakota, you'll find reasonable regulations, a balanced budget and limited taxes that make it easier for small businesses to reach their full potential. South Dakota also has neither a corporate nor individual state income tax, as well as no business inventory taxes or personal property taxes. The benefits of this kind of tax structure cannot be overstated. That said, South Dakota lacks the kind of booming business centers that states like California, New York, Florida, and New Jersey can offer. However, if you can find the right business idea for the economic atmosphere in South Dakota, operating a small business in the state will mean greater cash flow at the end of each year, making it easier for your business to reinvest and grow.
Washington is another state that doesn't have a personal income tax. However, this does not mean that Washington is tax free. The state has one of the highest sales taxes in the nation, ringing in at upwards of 9% when all is said and done. Depending on your line of business, this may not matter. However, studies have shown that sales tax does impact overall consumer behavior, so if you are going into a highly retail based business, the high sales tax may be something you want to consider.
That said, despite the high sales tax, if your business acquires a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale. If you are going to operate, for example, a coffee shop in the state, it is important that you are aware of this program, as it will save your business a lot of money in the long run.
Alaska benefits from having no personal income tax. As a result, for most small businesses, registering an LLC is a great option in Alaska. In comparison to other business entities, LLCs are easier to set up and manage and they have favorable tax treatment. You can set up an LLC in Alaska for as little as $250.
In fact, Alaska is actually one of the top five states to regsiter an LLC or LLP. Check out this blog from Biz2Credit to find out other four states that made the list!"
Michigan has a corporate income tax (CIT), but no franchise or privilege tax generally applicable to businesses. Thus, for the most part, unless your business is a traditional corporation (a C corporation), your business itself will not be subject to a state tax on income or net worth. However, if income from your business passes through to you personally, that income will be subject to taxation on your personal state tax return.
Michigans personal income tax is 4.25%, however, this can change for some individuals running pass through entities based on yearly revenues and other factors. As such, discussing tax implications with a qualified professional accountant can help you get a better picture of what sorts of taxes you will be responsible for.
The corporate income tax in Vermont applies to the net income of traditional corporations, and has several marginal rates.
The 8.50% top marginal rate places Vermont's corporate income tax among the higher corporate tax rates in the country.
As indicated in the first item on the foregoing list, there is also a minimum tax on corporations based on Vermont gross receipts.
Vermont also boasts some of the highest income tax rates in the country, with rates ranging from 3.55% to 9.4%. This is definitely something to consider if you are planning on running a pass through entity.
Montana is like most states in that it taxes corporate income, but unlike many states in that it does not have any franchise or privilege tax generally applicable to businesses. Thus, for the most part, unless your business is a traditional corporation (a C corporation), your business itself will not be subject to a state tax on income or net worth. However, their progressive state income tax has a top marginal rate of 6.9%.
Texas has a franchise tax that applies to most Texas businesses. At the same time, Texas has no personal income tax. Thus, while your Texas business itself may be subject to the franchise tax, any remaining income after these taxes that passes through to you personally, for example from an S corporation, LLC, or limited liability partnership (LLP), will not be subject to further taxation on your personal state tax return.
There is no minimum franchise tax. Moreover, if your business's total tax due is less than $1,000 or your business's annualized total revenue is less than or equal to the no-tax-due threshold, then you do not owe any franchise tax.
This favorable tax structure makes Texas a great option for small businesses. In addition, Texas has been the beneficiary of a growing population and increased economic activity over the past decade, which means the opportunities in the state continue to multiply.
To learn more about about small business financing in Texas, check out this in-depth blog from Biz2Credit on Texas small business loans.
Wyoming is one of just a few states that have neither a corporate income tax nor a personal income tax. In fact, with the possible exception of South Dakota, Wyoming may be the most income tax-friendly state in the country.
The one important exception to the general absence of major business taxes in Wyoming is the state's annual license tax (also known as the franchise tax or fee). The license tax is a tax on a business's assets in Wyoming, and applies to corporations, LLCs, and limited partnerships.
Iowa taxes corporation income using a series of marginal tax rates, or, in some instances, an alternative minimum tax.
The alternative minimum tax (AMT) applies if it would result in a greater amount due than under the foregoing rates. Iowa's AMT on corporation income is based on the federal AMT rules , but with multiple adjustments. Take a look at the AMT rules to see how to better manage your finances.
16. North Carolina
North Carolina's franchise tax applies to both traditional corporations and S corporations. It is effectively a tax on an aspect of a corporation's net worth. More specifically, the tax applies to whichever of the following three tax bases yields the largest tax:
There is a minimum franchise tax of $200. S corporations owe the $200 minimum franchise tax on the first $1 million of net worth.
The state's 5.25% flat rate income tax is also middle of the road as far as personal income taxes go, which means the tax setup for small businesses in North Carolina is relatively favorable.
Tennessee's excise tax, which effectively is an income tax, is a flat 6.5% tax on net earnings from doing business in the state. All capital losses are claimed in the year incurred. Generally speaking, only general partnerships and sole proprietorships are exempt from the excise tax.
Tennessee's franchise tax is based on the greater of a business's:
- net worth; or
- book value of real and tangible property owned or used in Tennessee.
The rate is 25 cents per $100, or fraction thereof, of the business's net worth. There is a minimum franchise tax of $100.
Nebraska has both a corporation income tax and a franchise tax known as the corporation occupation tax. Your business may be subject to one, both, or neither of these taxes depending on its legal form.
Nebraska taxes the income of traditional (C-type) corporations at two marginal rates:
- taxable income up to $100,000 taxed at 5.58%; and
- taxable income over $100,000 taxed at 7.81%.
Arizona is like most states in that it has a corporate income tax, but unlike many states in that it does not have any franchise or privilege tax. Thus, for the most part, unless your business is a traditional corporation (a C corporation), your business itself will not be subject to a state tax on income or net worth.
As of 2016, Arizona's official corporate tax rate is 4.9% with a minimum tax of $50. However, the actual rate paid by a specific business may vary depending on deductions and credits. Every state has different rules. This is the state of Arizonas policy on local taxes.
The excise tax generally is based on the greater of two values:
- the calculated tax on a corporation's income; or
- a minimum tax based on Oregon sales.
The calculated tax on income is based on two marginal rates - the higher rate applies for income over $1 million. As of 2018, corporations with income of $1 million or less pay a 6.6% tax, and corporations with income over $1 million pay $66,000 plus 7.6% tax on the amount over $1 million.
Ohio has a commercial activity tax (CAT) that applies to nearly every Ohio business and is based on gross receipts.
Ohio has special online registration requirements for the commercial activity tax, as well as special rules about how often, and when, businesses must pay the tax. For example, businesses with over $1 million in gross receipts must pay this tax on a quarterly basis; the quarterly returns are due by the 10th day of the second month following each calendar quarterly tax period
Connecticut has both a corporate income tax (which Connecticut calls its corporation business tax) and a business entity tax (BET). Your business may be subject to one, both, or neither of these taxes
Connecticut's corporation business tax annually taxes corporations at the greatest of the following three amounts:
- 7.5% of net income
- 3.1 mills per dollar of capital holdings (multiply capital holdings amount by .0031); or
- $250 minimum tax.
Maryland has a corporation income tax, but no franchise or privilege tax generally applicable to businesses.
Maryland's corporation income tax is assessed at a flat rate of 8.25% of net income.
Indiana taxes the adjusted gross income of corporations at a flat rate. That rate currently is set to decrease every 12 months.
any businesses that have employees and report gross wages to the Nevada Employment Security Division (ESD) are subject to the state's modified business tax (MBT). In other words, most Nevada businesses with employees are subject to the MBT.
The MBT is a quarterly state payroll tax. The tax is due on the last day of the first month following the end of a payroll quarter. For example, for the quarter running from July 1st to September 30th, the return and payment are due on October 31st.
The corporate franchise tax - which applies to both traditional corporations and S corporations - is based on an element of a business's net worth. More specifically, the tax is computed at $2.50 per $1,000 of the greater of:
- capital used, invested, or employed in the state; or
- the total assessed value of property in the state.
There is also a minimum franchise tax of $25.
Wisconsin taxes the net income of most traditional (C-type) corporations, including all Wisconsin corporations, through the corporation franchise tax. (The closely-related corporation income tax, which applies to a subset of non-Wisconsin corporations. The rate for the franchise tax is 7.9%.
The net worth tax applies to traditional C corporations, pass-through S corporations, and LLCs electing to file taxes as corporations. Net worth is based on capital stock, paid in surplus, and retained earnings. The tax is graduated, and ranges from a minimum nothing for $100,000 or less of net worth up to a maximum of $5,000 for net worth over $22 million.
Hawaii taxes corporate net capital gains at an alternative rate of 4%. State tax returns are due on the 20th day of the fourth month after the close of the tax year. Personal income tax ranges from 1.4% to 11%, so while the bottom end of the scale is relatively low compared to many states, the upper end is relatively high, which is something to consider based on the plans you have for your business.
30. New Hampshire
New Hampshire has both a business profits tax (BPT), which is a tax on business income, and a business enterprise tax (BET), which is a tax on a business's enterprise value tax base. Both of these taxes apply to essentially every form of New Hampshire business.
The tax applies to income from business activity in the state, applied before any federal net operating loss or special deductions, and with various state-specific additions and deductions. Businesses with $50,000 or less in New Hampshire gross receipts are not required to file a BPT return. BPT returns for partnerships are due on the 15th day of the 3rd month following the end of the taxable period.
31. North Dakota
North Dakota corporations are subject to North Dakota's corporate income tax at rates ranging from 1.4% to 4.31%.
Example: For the 2018 tax year, your North Dakota corporation had taxable income of $200,000. Other things being equal, the corporation will owe North Dakota corporate income tax.
32. Rhode Island
Rhode Island has a business corporation tax but no franchise tax.
Under Rhode Island's business corporation tax, as of 2018 C corporation income is taxed at a flat rate of 7.0%. Also as of 2018, the minimum business corporation tax is $400.
Louisiana is unusual in that, by default, it taxes S corporations in the same way as traditional corporations. Consequently, the corporation franchise tax and corporation income tax both apply to Louisiana S corporations. However, there is one key exception to this unusual approach to S corporations which allows some S corporations to pay less or no state income tax.
Oklahoma's corporation franchise tax applies to traditional (C-type) corporations and S corporations. The franchise tax is assessed at the rate of $1.25 per $1,000 or fraction thereof on the amount of capital allocated, invested, or employed in Oklahoma, with a $250 minimum tax and $20,000 maximum tax.
Illinois also requires traditional corporations, S corporations, LLCs, and partnerships to pay a personal property replacement tax. This tax is based on a business's net income. For traditional corporations, the tax is 2.5% of net income, and for other forms of business, the tax is 1.5% of net income. Due dates vary depending on the legal form of your business.
Finally, Illinois corporations are required to pay an annual franchise tax, which is a tax on the privilege of having an Illinois corporation. The tax is due each year on the anniversary of the formation of the corporation and essentially is based on the corporation's net worth.
Utah's franchise tax on corporation net income has a flat rate of 5%. There is a minimum tax of $100. Returns are due on the 15th day of the fourth month after the end of the corporation's tax year.
Colorado has a corporate income tax as well as an alternative tax on gross receipts. However, unlike many states, Colorado does not have any franchise or privilege tax generally applicable to businesses.
Colorado taxes the net income of corporations at a flat rate of 4.63%. This is the same as the state's tax rate on personal income.
For certain taxpayers, Colorado offers a gross receipts tax as an alternative to the income tax. In order to qualify:
- the taxpayer's only activity in Colorado must be making sales
- the taxpayer's Colorado sales must total $100,000 or less; and
- the taxpayer may not rent or own real estate in Colorado.
Delaware LLCs, limited partnerships, and general partnerships are required to pay an annual tax of $300.
39. West Virginia
West Virginia's corporation net income tax applies to traditional (C-type) corporations. For 2018, the tax is assessed at a flat rate of 6.5%. The tax is based on federal taxable income derived from West Virginia. Corporation net income tax returns are due on the 15th day of the fourth month after the close of the tax year.
40. New Mexico
New Mexico taxes corporate income at a series of marginal rates. The rates, and sometimes the brackets, have changed annually over the last half dozen years. For 2018, the rates and brackets are as follows:
- total net income not over $500,000 = 4.8% tax
- total net income over $500,000 = $24,000 plus 5.9% of net income over $500,000.
Minnesota's corporation franchise tax, which is a tax on the income of traditional corporations, is comprised of a flat 9.8% tax plus an additional, alternative minimum tax (AMT). In general terms, the AMT is based largely on the federal AMT rules , and is a 5.8% tax on Minnesota alternative minimum taxable income in excess of $40,000.
Minnesota's minimum fee tax applies to traditional corporations, S corporations, LLCs, and partnerships. The minimum fee is based on the combined value of a business's property, payroll, and sales.
Missouri has both a corporation income tax but, as of 2016, no longer has a corporation franchise tax. Thus, for the most part, unless your business is a traditional corporation (a C corporation), your business itself will not be subject to a state tax on income or net worth.
Arkansas's corporation franchise tax applies to the most common types of stock corporations as well as to LLCs. For stock corporations, the tax is 0.3% of the value of the corporation's outstanding stock with a minimum tax of $150. LLCs are required to pay the minimum $150 franchise tax. The franchise tax is due on May 1st.
The corporate income tax is a graduated tax on net income: the rates incrementally increase for higher amounts of income.
Kentucky's limited liability entity tax applies to traditional corporations, S corporations, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs). The tax is based on a business's annual gross receipts. For businesses with gross receipts less than $3 million, there is a minimum LLET of $175.
The business privilege tax is a tax on the net worth of your business. The rate for the tax depends on how much taxable income your business has, and ranges from $.25 per $1,000 in net worth to $1.75 per $1,000 of net worth.
Maine has an alternative minimum tax (AMT) based on the federal AMT rules , with adjustments. The Maine corporate income tax return is due on the same date as the federal corporate income tax return (the fifteenth day of the fourth month after the end of the tax year).
Idaho has a corporate income tax, as well as certain special taxes applicable to S corporations and LLCs.
Idaho also allows taxpayers who own no property in Idaho, have no payroll in Idaho, and whose gross sales in the state do not exceed $100,000 to pay an alternative tax of 1% of gross sales.
48. South Carolina
South Carolina's corporate license fee (corporation license tax), which applies to both traditional corporations and S corporations, is essentially a franchise tax based on net worth. There is a minimum license fee of $25. The license fee is due at the same time as the annual corporate income tax return.
Kansas has a corporate income tax, but, at least for recent tax years, no franchise or privilege tax generally applicable to businesses. (Technically, Kansas's does have a franchise tax, but it only applies to tax years commencing on or before December 31, 2010; it is now relevant only to businesses that failed to pay the tax in those prior tax years.)
Virginia's corporation income tax is assessed at a flat rate of 6% on net income. (Certain corporations not likely to be small businesses, such as telecommunications companies and electric suppliers, may be subject to different tax rates.)
Are you an entrepreneur in Virginia? Check out this in-depth blog from Biz2Credit to learn what it takes to open a small business in Virginia.
Summary: Managing Small Business Finances
As you can see from this guide we put together, there is a lot to learn about each state, more specifically the state you run a small business in or are trying to open a new business in. Above is general information that can help you save/ manage your finances for business growth and success. If you need more advice, contact us and let us help you manage your finances.
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