The Top Ten Most Business Friendly States of  2011

By Mark Heidelberger

With the national economy struggling to regain its once sure footing, several states have made moves recently to attract entrepreneurs searching for friendly, pro-business environments. Areas vital to business owners typically include the availability of labor, hard costs, taxes, regulatory conditions, growth potential, the current economic climate and the overall quality of life. Based on these factors, ten states stood out in a 2011 US Chamber of Commerce report as being positioned to give businesses of all sizes the best chance to succeed, regardless of the nature of the business itself. In addition, these states appear poised to continue facilitating healthy pro-growth environments through 2012. 

Utah: The Beehive State has one of the lowest corporate tax rates in the country, reducing it from 7% to 5% in 2008, and its $400 million deficit is comparatively small by state standards. Energy costs are 35% below the national average and the workforce is highly educated, with 9 in 10 people holding a high school diploma and 1 in 3 being college educated. Poverty rates are low, quality of life is generally high, and the Pacific Research Institute rated its business-friendly regulatory environment the second best in the nation. In addition, an advisory committee formed to generate greater efficiency in state government reduced unnecessary red tape and practically eliminated wasteful duplication of services. 

North Dakota: The Peace Garden State’s economy expanded faster annually over the last five years than any other state and was rated in a CNBC Special Report as the most fiscally healthy state in the nation. The state is flush with cash based on a large 2011 budget surplus, with another expected surplus in 2012, so tax rates are not expected to rise anytime soon. The corporate tax rate is anywhere from 2.1% to 7% depending on the type of business (taxes are highest for financial institutions) and the unemployment rate is far below the national average at 3.2%. Additionally, a ballot measure recently passed creating a long-term savings fund for tax revenue generated from oil extraction. 

Kentucky: The Bluegrass State has the lowest cost of living in the country, and officials are looking to capitalize on that in order to draw more businesses. The corporate tax rate is anywhere from 4% to 6%, and the legislature has balanced the state budget eight consecutive times without significant tax increases. A 2011 survey among site location consultants ranked it first in competitive utility rates, and the cost of industrial electricity is 27% below the national average. Other attractive offerings include a small business tax credit program and one-stop online interface that simplifies business filings. 

Missouri: The Show Me State is home to major employers such as AT&T and Boeing, which take advantage of its 6.25% corporate tax rate. Only income generated in-state is taxed, and manufacturer’s inventories are exempt from property taxes.  The state continues to do well fiscally despite a projected budget shortfall of $700 million in 2012. Recent pro-business legislation that has been enacted includes strong tort reform laws and comprehensive changes to the workers’ compensation system. Also, the state boasts the sixth lowest gas taxes in the nation. 

Texas: The Lone Star State’s 2009 GDP per capita of $43,032 was among the highest in the country. The state has no individual income tax, although a fluctuating franchise tax may be levied on certain businesses, and property used for manufacturing machinery, goods in transit or pollution control is tax exempt. All of this combined with an extremely low cost of living and enterprise-friendly climate championed by Governor Rick Perry means that Texas has been adding private sector jobs at a much faster rate than other large states. As a result, the market has attracted upwards of 4.3 million job seekers during the last decade alone. 

Indiana: The Hoosier State has rebounded from near insolvency in recent years by enacting a series of government reforms that reduced waste, increased efficiency and turned bi-annual budget deficits into a $1 billion surplus. Indiana has the fifth highest rate of commercial freight traffic in the nation, moving more than 1.1 billion tons per year, and has a workforce of over 250,000 logistical professionals. New legislation has also lead to an inventory tax exemption, statewide telecommunications upgrades, a fully funded 10-year transportation plan and low corporate insurance costs. 

Alaska: The Last Frontier is becoming the first frontier for business owners looking to take advantage of a graduated tax rate that starts at 1%, with additional incentives for oil and gas exploration and a two-year suspension of the motor fuel tax.  The state’s $12 billion in savings is a strong hedge against fluctuating fuel prices, enough for two full years of operation, meaning it won’t be looking to increase tax rates anytime soon either. As a result, the GDP per capita topped a whopping $63,864 in 2009. Banks are also offering more flexible loan terms and higher interest rates than in other states. 

Wyoming: The Cowboy State has no corporate tax rate, no projected budget gap in 2012, and an unemployment rate of just 6%. The property foreclosure rate in May of 2011 was far below the national average at just 1 in 2,331 households, while the 2009 GDP per capita was the highest in the country at $65,199. Low energy costs and an excellent quality of life continue to attract entrepreneurs from neighboring states, and tax-friendly legislation such as an exemption on manufacturing is intended to help diversify an economy heavily reliant on tourism and agriculture. 

South Dakota: The Mount Rushmore State has the friendliest business tax climate in the US, with no corporate or personal income, inheritance, personal property or business inventory taxes. Qualified business-building projects can also receive refunds of sales, use and excise taxes. The state sales tax is just 4% and a graduated tax structure for financial institutions starts at just 0.25%. The unemployment rate is a mere 4.8% and May 2011 foreclosures were just 1 in 3,974. Despite a deficit of $127 million going into 2012, Governor Dennis Daugaard’s budget calls for a 10% overall tax reduction to be paired with spending cuts. 

Tennessee: The Volunteer State’s largest employers include UPS, Lowe’s and FedEx, lured by a 6.5% corporate tax rate and sales tax reductions for manufacturers. According to the US Chamber of Commerce, Tennessee has the fourth lowest state and local tax burden in the country, which creates a favorable environment for business owners when combined with a low cost of living and a state legislature that has emphasized deregulation of private industry. Job-creating businesses get breaks on excise and franchise taxes, while large industrial employers can carry losses beyond the state’s traditional 15-year limit.