5 Best (and Worst) States for Business Taxes in 2026

When deciding where to start or grow your business in the US, the tax situation in each state plays a big role. As a business owner, you need to understand how business taxes work and how friendly or challenging they are across the country. Doing so can save you from financial and mental distress down the line.

Taxes affect everything from your take-home profits to how much you pay to keep employees and run your operations. Not only that, they also impact your ability to invest, hire and grow over time.

In this guide, we’ll explore the five best states for business taxes along with the five worst ones based on common state-level taxes. Here is everything you need to know to make smarter and more informed tax decisions for your business. We'll also discuss the Wise Business account. The global account that can help your company with all things cross-border.

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Methodology for Evaluating the Best State for Business Taxes

We have prepared this list based on the data from the Tax Foundation’s State Business Tax Climate Index 2025.¹ It assessed the tax situation in all 50 US states based on how well each state structures its tax system. The goal was to empower business leaders, taxpayers, entrepreneurs and government policymakers to make informed choices by comparing tax systems across the country.

The Tax Foundation’s State Business Tax Climate Index 2025 evaluated each state based on five factors:

• Individual Income Taxes
• Sales Taxes
• Corporate Taxes
• Property Taxes
• Unemployment Insurance (UI) Taxes

As a business owner planning to establish or expand in the US, you should know what these taxes are and why they’re important for you.

Individual Income Taxes

Individual income tax is what you pay on money you earn personally from your business, especially relevant if you’re a sole proprietor, partner or owner of an S-corporation where profits “pass through” to your personal tax return.

Some states tax this income heavily, which can take a big bite out of what you actually take home. Others don’t tax individual income at all, which can mean more cash flow for reinvestment and personal use.

Knowing the rates in the state you operate can influence where you decide to start or move your business.

Sales Taxes

Sales tax is charged on many goods and services at the point of sale and usually collected by the business from customers to be passed on to the state. The rate can vary widely by state and even locality within a state.

For retailers or any business selling taxable products or services, sales tax affects pricing, competitiveness and profitability. You should be aware not only of the tax rate but also of whether the state and local jurisdictions require you to collect and remit tax on sales made across borders or online.

Corporate Income Taxes

If your business is legally organized as a corporation, it likely pays corporate income tax on its profits. This is separate from personal income tax and can vary significantly from state to state.

Corporate tax rates affect how much profit gets reinvested versus paid in taxes, impacting your business’s growth potential.

Property Taxes

Property taxes apply to real estate your business owns, such as office buildings, warehouses, land and so on. These taxes are based on the assessed value of the property and can vary dramatically from one state or county to another.

High property taxes can increase fixed overhead and influence decisions about whether to buy or lease property, and where to locate physical operations.

Unemployment Insurance (UI) Taxes

UI taxes are payroll taxes employers pay to fund unemployment benefits for workers who lose their jobs through no fault of their own. Every state has its own rules on UI tax rates and taxable wage bases, meaning costs can differ widely.

These taxes are an ongoing expense for employers and can influence decisions about hiring and workforce size.

Federal Tax Credits

Wherever you run your business in the US, federal tax credits can help reduce your taxes. These credits reward businesses for activities that benefit the economy and society. It could be hiring veterans or other target groups (Work Opportunity Credit), providing childcare services or investing in clean energy technologies like electric vehicles.

These benefits come under the general business tax credit provided by the Internal Revenue Code (IRC).² You can check out the Internal Revenue Service (IRS) website to find the list of forms and documents you need to claim these perks.³

If you’re a small business owner, you can save up to 50% on employee health insurance premiums by paying at least half the cost and having fewer than 25 full-time employees earning under $56,000 on average.⁴ This falls under the Small Business Healthcare Tax Credit.

Staying aware of these credits can significantly ease your tax burden in the long run.

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Best States for Business Taxes

According to the Tax Foundation’s State Business Tax Climate Index 2025 report, the five best states for business taxes are:¹

1. Wyoming (Best)
2. South Dakota
3. Alaska
4. Florida
5. Montana

State	Overall Rank	Corporate Tax Rank	Individual Income Tax Rank	Sales Tax Rank	Property Tax Rank	Unemployment Insurance Tax Rank
Wyoming	1	1	1	7	44	31
South Dakota	2	1	1	31	10	22
Alaska	3	34	1	5	30	45
Florida	4	16	1	14	21	10
Montana	5	19	10	3	18	21

1. Wyoming (Best)

Wyoming is the best state for business taxes as it doesn’t have both individual and corporate income taxes.¹ This means more money stays in your pocket. Sales taxes here are moderate, and local governments can add their own rates, but overall, taxes stay quite reasonable.

Employers also benefit from friendly UI tax rates. The property taxes are also some of the lowest you’ll find anywhere in the US Moreover, businesses can benefit fully from available federal tax credits.¹

All in all, Wyoming is a state that operates with business in mind.

2. South Dakota

South Dakota is another top contender, thanks to no individual or corporate income tax at the state level.¹ That’s a big deal for startups and established businesses alike. The state’s sales tax rate is 4.2% in 2025, but keep in mind local municipalities might tack on extra charges.⁵

Employer UI taxes are competitive, so employers aren’t stuck with sky-high costs. This also supports job growth without excessive costs. Property tax levels are friendly to business owners, rounding out South Dakota’s business-friendly profile.¹

Like any other state, South Dakota businesses also get federal tax credits.

3. Alaska

Alaska’s standout feature is the lack of state-level individual income and sales taxes. That said, local sales taxes do exist in places around the state, so it’s worth checking those out if you’re selling there.¹

Alaska does have a corporate income tax (9.4%), but rates are pretty reasonable compared to some other states.¹ One thing to watch is UI taxes, which are on the heavier side here. On the bright side, property taxes are some of the lowest in the nation, which can help if you own business property.

The state also has a broad array of federal tax credits.

4. Florida

Florida imposes no individual income tax, which is a significant advantage for business owners residing there.¹ The corporate income tax is moderate at 5.5%, putting Florida in a decent spot among states that levy this tax.⁶

The state sales tax, combined with local additions, remains competitive and does not heavily burden consumers or retailers. Employers face reasonable UI taxes, and property taxes are on the lower side, too.¹

As elsewhere, federal tax credits provide additional financial relief to Florida-based businesses.

5. Montana

Montana has made notable smart tax reforms to enhance its tax competitiveness. Starting in 2021, the state simplified its individual income tax brackets from seven down to two, while slashing the top marginal rate to 5.9% by 2025.¹ This reform propelled Montana's individual income tax rank from 22nd to 10th place.¹

Additionally, Montana does not impose a state sales tax, which is a big help for businesses selling goods locally. Corporate income and UI taxes here are moderate, and property tax levels are average when compared nationally. Montana businesses also have access to all the usual federal tax credits.¹

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Lowest-ranked States for Business Taxes

According to the Index, these five states have the most complex, non-neutral taxes with comparatively high rates for businesses:¹

1. New York (Worst)
2. New Jersey
3. California
4. Connecticut
5. Maryland

State	Overall Rank	Corporate Tax Rank	Individual Income Tax Rank	Sales Tax Rank	Property Tax Rank	Unemployment Insurance Tax Rank
New York	50	28	50	42	47	37
New Jersey	49	44	48	35	43	50
California	48	41	49	46	23	25
Connecticut	47	31	47	21	50	40
Maryland	46	37	45	39	35	20

1. New York (Worst)

New York is no stranger to high taxes, with steep marginal individual and corporate income tax rates for businesses. Sales taxes at both the state (4%) and local levels (4.53%) are substantial, and employers face significant UI tax costs.¹

Property taxes, especially in business-heavy areas, add further strain. While federal tax credits do provide some relief, these benefits do not considerably lower the state’s overall tax burdens.

2. New Jersey

New Jersey also features some of the highest tax rates in the country. Individual income tax, corporate income tax and property tax all add up to the pressure. The state recently removed Global Intangible Low-Taxed Income (GILTI) from its tax base, which was a positive move, but it hasn’t made a huge difference in the overall ranking.⁷

Businesses also deal with high sales tax rates and a heavy UI tax load. Federal tax credits exist, but aren’t enough to counterbalance these state and local taxes.

3. California

California has a reputation for its high taxes. The state has an uncapped 1.1% non-unemployment payroll tax, which makes the top marginal tax rate on wages a staggering 14.4%.¹

Plus, California doesn’t allow businesses to carry forward net operating losses anymore, which means they can't offset bad years against good ones for tax purposes. This negatively affects their cash flow. Add to that some of the highest combined state and local sales taxes and property taxes in many counties, and you have a tough environment.

Federal credits provide some help, but the state’s overall tax cost remains steep.

4. Connecticut

Connecticut’s individual income tax rates rank among the top in the country. Although the corporate capital stock tax rate dropped from 0.31% to 0.26% in 2025, it’s still a notable cost with a phaseout planned for the future.¹

Sales taxes are moderate, but add to an overall high tax burden when combined with Connecticut’s heavy UI and property taxes. Federal tax credits are available, but don’t make a huge dent in the overall tax picture.

5. Maryland

Maryland’s tax situation can be tough for businesses. Individual income tax rates are fairly high, and corporate tax rates add another layer of cost. The combined effect of state and local sales taxes can make operating costs climb.¹

Employers face relatively heavy UI tax burdens, which don’t help the bottom line. Plus, property taxes can add up for businesses that own real estate in Maryland. While federal tax credits do offer a bit of relief, they only partially offset the state's sizable tax liabilities.¹

Navigating Business Taxes in the US: Key Takeaway

A state with a well-balanced tax system can create an environment ripe for economic growth, innovation and entrepreneurship.

If a state has high corporate and personal income taxes, it typically signals slow economic expansion with reduced incentives for investment and work. On the other hand, states that keep taxes moderate or offer major breaks can attract new businesses and encourage existing ones to thrive.

Sales and property taxes also matter significantly, especially if you’re a retailer or property owner. These taxes affect overhead and pricing decisions. UI taxes, while unavoidable, vary enough to influence employer costs.

Besides state-level taxes, federal tax credits offer valuable relief that should not be overlooked. They can help small and large businesses save significantly on employee health insurance, hiring certain groups and investing in greener technologies. Evaluate these factors wisely to choose the best state for business taxes for 2025 and beyond.

Frequently Answered Questions

Which state has the lowest taxes for business?

South Dakota and Wyoming often top the list for the lowest business taxes because they don’t have individual or corporate income taxes. Both states also offer low property taxes and reasonable sales taxes, making them very attractive for business owners looking to keep tax burdens low.

What is the best state to own a business for tax purposes?

Wyoming, South Dakota, Alaska, Florida and Montana are among the best states for business taxes due to their low or nonexistent income taxes and favorable tax climates overall. These states combine no or low personal and corporate income taxes, reasonable sales and property taxes and employer-friendly regulations.

What state has no taxes for LLCs?

Several states, like Wyoming, South Dakota and Nevada, have no individual income tax. This benefits LLC owners because income usually passes through to personal tax returns. These states also often have no corporate income tax, making them popular choices for LLC formation.

Which states have the worst taxes for business?

States like New York, New Jersey, California, Connecticut and Maryland consistently rank as having the worst business tax climates. These states have higher individual and corporate income tax rates, as well as hefty property taxes. Some also have complex, non-neutral tax systems that increase costs and complexity for businesses.

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Sources:

1. 2025 State Tax Competitiveness Index | Tax Foundation
2. What Is Form 3800: General Business Credit? | Investopedia
3. Business tax credits | IRS
4. SHOP Marketplace basics for employers | HealthCare.gov
5. Individual Sale and Use Tax | Department of Revenue (DOR)
6. Florida Corporate Income Tax | Florida Department of Revenue
7. New Jersey Should Take Opportunity to Make Corporate Taxes More Competitive | Tax Foundation