Best States to Form an LLC

Which States Offer the Best Business Tax Environment for Corporations?

Forming an LLC
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Deciding where to form a Limited Liability Company (LLC) involves many different factors including taxes, regulatory burden, workforce availability, and more. In this article we will explore the best states to form an LLC from an overall business climate perspective.

What Is a Limited Liability Company?

Like sole proprietorships or partnerships, an LLC is an unincorporated entity––income from the business flows through to the owners and investors as personal income. However, like a corporation, an LLC provides limited liability––owner(s) liability is limited to the amount of their investment in the company.

If you are considering setting up an LLC, the map below shows a breakdown of the 10 best and 10 worst states to form one. The rankings consider important factors like corporate tax rate, individual income tax rate, sales tax rate, average property tax rate, and unemployment rate by state.

The 10 Best States to Form an LLC

Below are the top 10 states to form an LLC in order of overall rank. The rankings are strictly based on the business climate and do not take into account lifestyle factors such as health care, education, infrastructure, crime rates, weather, etc.

The quoted tax and unemployment rates are as of June 2018 and may change at any time. Corporate and individual tax rates are taken from State government websites (as linked). Unemployment rates are taken from the Bureau of Labor Statistics. Average effective property tax rates are as computed by smartasset.

Note that in some states individual counties and municipalities levy their own sales tax in addition to (or instead of) a statewide sales tax.

1. Wyoming

  • Corporate tax rate: 0 percent
  • Individual income tax rate: 0 percent
  • Sales tax rate: 4.00 percent
  • Average effective property tax rate: .61 percent (national average is 1.19 percent)
  • Unemployment rate: 4.0 percent

With no corporate or individual income taxes and a low sales tax rate, Wyoming ranks as the number one state in the nation to form an LLC.

2. Alaska

  • Corporate tax rate: 9.4 percent
  • Individual income tax rate: 0 percent
  • Sales tax rate: 0 percent (municipalities can charge up to 7 percent)
  • Average effective property tax rate: 1.19 percent
  • Unemployment: 7.3 percent
  • Corporate tax rate: 0 percent
  • Individual income tax rate: 0 percent
  • Sales tax rate: 4.50 percent
  • Average effective property tax rate: 1.32 percent
  • Unemployment: 3.2 percent

4. Florida

  • Corporate tax rate: 5.5 percent
  • Individual income tax rate: 0 percent
  • Sales tax rate: 6.00 percent
  • Average effective property tax rate: 1.02 percent
  • Unemployment: 3.8 percent

5. Nevada

  • Corporate tax rate: 0 percent
  • Individual income tax rate: 0 percent
  • Sales tax rate: 6.85 percent (statewide—locally can be as high as 8.265 percent)
  • Average effective property tax rate: .77 percent
  • Unemployment: 4.7 percent

6. Montana

  • Corporate tax rate: 6.75 percent
  • Individual income tax rate: ranges from 1 percent to 6.9 percent, depending on income
  • Sales tax rate: 0 percent
  • Average effective property tax rate: .87 percent
  • Unemployment: 3.8 percent
  • Corporate tax rate: 7.9 percent
  • Business enterprise tax: .72 percent
  • Individual income tax rate: 0 percent (5 percent on dividend and interest income)
  • Sales tax rate: 0 percent
  • Average effective property tax rate: 2.19 percent
  • Unemployment: 2.7 percent

8. Utah

  • Corporate tax rate: 5 percent
  • Individual income tax rate: 5 percent
  • State sales tax rate: 4.7 percent (total sales tax rate in Salt Lake City is 6.85 percent)
  • Average effective property tax rate: .67 percent
  • Unemployment: 3.0 percent

9. Oregon

  • Corporate tax rate: 6.6 percent on first $1 million of income, 7.6 percent on income above $1 million
  • Individual income tax rate: ranges from 5 percent to 9.9 percent, depending on income
  • Sales tax rate: 0 percent
  • Average effective property tax rate: 1.27 percent
  • Unemployment: 4.0 percent

10. Indiana

  • Corporate tax rate: 6 percent (to be reduced to 4.9 percent by 2021)
  • Individual income tax rate: 3.23 percent + county tax rates from .01 to .021 percent
  • Sales tax rate: 7 percent
  • Average effective property tax rate: .87 percent
  • Unemployment: 3.3 percent

The 10 Worst States to Form an LLC

Below are the top 10 least desirable states to form an LLC beginning with the worst:

  • Corporate tax rate: 9.00 percent (7.5 percent on net income of $50,001 - $100,000, 6.5 percent on net income of $50,000 or less)
  • Individual income tax rate: ranges from 3.5 percent on income of $35,000 or more to 8.97 percent for $500,000 or more. Income over $5 million is subject to 10.75 percent tax.
  • Sales tax rate: 6.625 percent
  • Average effective property tax rate: 2.4 percent
  • Unemployment: 4.3 percent

With high corporate, individual, sales, and property taxes, New Jersey has the most challenging business climate in the nation.

  • Corporate tax rate: 8.84 percent
  • Maximum Individual income tax rate: 13.3 percent (for taxable income in excess of $1,000,000)
  • Sales tax rate: 7.25 percent
  • Average effective property tax rate: .79 percent
  • Unemployment: 4.2 percent
  • Corporate tax rate: 6.50 percent (0 percent for qualified manufacturers)
  • Individual income tax rate: ranges from 4.0 percent to 8.82 percent for incomes of $1,077,550 or more (single) or $2,155,350 or more (married filing jointly)
  • Sales tax rate: 4.00 percent (8.875 percent sales + use tax in New York City)
  • Average effective property tax rate: 1.65 percent (.80 percent in New York City)
  • Unemployment: 4.5 percent
  • Corporate tax rate: 9 percent
  • Individual income tax rate: ranges from 3 percent to 6.99 percent for incomes over $500,000
  • Sales tax rate: 6.35 percent
  • Average effective property tax rate: 2 percent
  • Unemployment: 4.4 percent
  • Corporate tax rate: 9.80 percent
  • Individual income tax rate: ranges from 5.35 percent to 9.85 percent for incomes over $266,700
  • Sales tax rate: 6.875 percent (as high as 8.375 percent in some municipalities)
  • Average effective property tax rate: 1.19 percent
  • Unemployment: 3.1 percent

6. Ohio

  • Corporate tax rate: 0 percent
  • Commercial Activity Tax: .26 percent for businesses with gross receipts of $1 million or more per year
  • Individual income tax rate: ranges from $0 for incomes under $10,000 to $8178 + 5 percent of income over $213,000.
  • Sales tax rate: 5.75 percent (as high as 8 percent in some municipalities)
  • Average effective property tax rate: 1.55 percent
  • Unemployment: 4.5 percent
  • Corporate tax rate: 8.25 percent
  • Individual income tax rate: up to 5.75 percent for incomes over $300,000. Counties also levy an additional income tax of between 1.75 and 3 percent.
  • Sales tax rate: 6.00 percent
  • Average effective property tax rate: 1.21 percent
  • Unemployment: 4.3 percent
  • Corporate tax rate: ranges from 4 percent to 8 percent for taxable income over $200,000
  • Maximum Individual income tax rate: 6 percent
  • Sales tax rate: 4.45 percent
  • Average effective property tax rate: .51 percent
  • Unemployment: 4.7 percent

9. Vermont

  • Corporate tax rate: 8.50 percent maximum for taxable income over $25,000
  • Individual income tax rate: up to 8.95 percent on incomes over $416,650
  • Sales tax rate: 6.00 percent (up to 7 percent in some municipalities)
  • Average effective property tax rate: 1.71 percent
  • Unemployment: 2.8 percent

10. Iowa

  • Corporate tax rate: 6 percent to 12 percent on business income over $25,000 (highest in the country)*
  • Maximum Individual income tax rate: 8.98 percent
  • Sales tax rate: 6.00 percent
  • Average effective property tax rate: 1.49 percent
  • Unemployment: 2.8 percent

*Iowa is currently working on passing legislation to reduce the top corporate tax rate to 9.8 percent by 2021.

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