The best tax systems for entrepreneurship, with the top states listed in green and bottom listed in red.

Washington state has one of the best tax systems in the country when it comes to supporting entrepreneurship and small business, according to a report out this week from the Small Business & Entrepreneurship Council. Washington state, which has no income tax system, ranked fifth behind South Dakota, Texas, Nevada, and Wyoming.

Flickr photo via DonkeyHotey

The bottom states included California, Maine, Iowa, New York, New Jersey, Minnesota, and  District of Columbia.

“All taxes matter, whether imposed at the federal, state or local level of government. They matter to consumers, entrepreneurs, investors and businesses. State and local levies matter in terms of a state’s competitiveness. And they matter when it comes to economic growth and job creation,” said Raymond Keating, chief economist of the SBE Council.

Full report here.


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  • Void

    California clearly has an entrepreneurship problem due to its tax code…

    • jandrewrogers

      One of the reasons I moved to Seattle a year and a half ago is that California is a dreadful and painful place for entrepreneurs. I did the startup thing in Silicon Valley for 15 years before moving. Silicon Valley is there despite the suboptimal governance, not because of it, and it came into being when California was a friendlier place for business. California does not prevent small businesses but it adds a lot of unnecessary friction. Now I do startups in Seattle. The experience is markedly better.

      The article is about taxes, which are well-known to be quite high in California; pay some of the highest taxes in the country, get far less for them than most other states with lower taxes. Those taxes are not supporting entrepreneurship in a meaningful way. But ignore the tax differences for a moment.

      For as much as Seattle is not the most bureaucrat-free place in the country, it is still much easier to deal with and navigate than California on pure bureaucracy metrics even if you discount taxes. I’ve been there and done that in both states. Washington is unambiguously a nicer state to run a small business in from a “dealing with the government” standpoint. And there are many things Washington could do to improve its startup friendliness with respect to government policy. 

      Taxes are part of the story but not the whole story. Even if California did not have very high taxes relative to Washington, it would still be an unfriendly place to be an entrepreneur with respect to the government. Taxes are only a small part of a bigger picture.

    • Marcelo Calbucci

      Talk about New York. They are totally bad for entrepreneurs due to their complex tax system, that’s why… wait. Never mind.

  • Guest

    Congratulations to Washington for once again leading the way! 

    • Aaron

       Apparently they were not aware of our B&O tax in which you pay tax on the GROSS revenues through your door, regardless of if you make a profit or not.

      • Guest

        That’s an unjust tax, Aaron. Why not tax the net profits instead?

  • davenaff

    Wow, how is this even considered ‘research’?

    It is simply a straight sum of the maximum tax rates across 18 categories (actually, some categories are either a 1 or a 0, and the wireless tax was modified to represent 10% of the index).

    The thing that matters most is ‘taxes paid’, probably followed by administrative burden. The magnitude of the B&O tax @893133928d6ab286d7d4520c4af6ffff:disqus  mentions far outweighs all other taxes for growing (unprofitable) high technology startups.

  • Davey

    In 2011, California had a small business failure rate nearly 70% higher than the national average!

    If you wanted to know… that was the highest in the country. 

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