Forming an LLC is one part of the equation, knowing which state is or can be the most suitable for your business is another. There are certain factors such as labor force, state taxes, permits and licenses, business regulations, etc., that will have a huge role in your LLC formation decision-making.
Not all states in the US offer the same environment for your business. There are numerous state-level elements that might prove to be vital for your LLC. Visit entitysearch.org if you want to learn more about forming your own LLC. Here, we will analyze the best and worst states for forming an LLC within the United States.
10 Best US States for LLC Formation
Let us now have a look at the top 10 best and worst states for LLC formation in terms of various government taxes such as corporate tax, sales tax, individual income tax, and unemployment rate.
In addition to or instead of a statewide sales tax , there are some US states that might have their own taxation mechanism, too.
With a corporate tax and individual income tax of 0%, Wyoming is considered to be the best US state to start an LLC.
Moreover, the sales tax and unemployment rate stands at 4%. Avg. effective property tax rate is 0.61% – these numbers are beneficial for any new business owner or an entrepreneur to get their LLC formed.
The state of Alaska is another great option for LLC formation as it has a favorable overall business climate.
As far as the numbers are concerned, corporate tax rate stands at 9.4%, Sales tax and individual income tax is zero (although some local municipalities might impose a sales tax of up to 7%). Avg. effective property tax is 1.19% and unemployment is 7.3%.
The state of South Dakota has a corporate tax and individual income tax of 0%, sales tax stands at 4.5%, avg effective property tax is 1.32% and unemployment 3.2%.
With such stats, this state is another good option for you if you are yet to make the decision regarding the state where you want your LLC to be based in.
Florida has a corporate tax of 5.5%, sales tax is 6%, unemployment stands at 3.8% and avg. effective property tax is 1.02%.
Florida is considered to be one of the better states in the United States in terms of lifestyle, infrastructure, education, etc. So if you are planning to register your LLC in this state, your own family members or your future employees and their families will have a better and safe living standard.
With 0% corporate tax and individual income tax, Nevada is also a good option if you are planning to start an LLC.
Although sales tax charged by the state stands at 6.85%, and it can go up to 8.3% in some areas depending on taxes imposed by local counties or cities. Avg. effective property tax is around 0.77% and unemployment is 4.7%.
Ranking at #6, the state of Montana has a corporate tax of 6.75%, individual income tax is somewhere in between 1%-6.9% (based on individual’s income). Avg. effective property tax is around 0.87% and unemployment stands at 3.8%.
There is no state-level sales tax in Nevada and this usually benefits the businesses both in the short and the long-run.
This state offers a business enterprise tax of 0.72%, corporate tax is 7.9%, avg. effective property tax stands at 2.19% and unemployment rate is 2.7%. Just like a number of other US states, there is no sales tax in New Hampshire at a state level.
Utah is ranked at #8th for LLC formation in the United States. As far as the tax rates are concerned, this state charges a 5% corporate and individual income tax, avg. effective property tax is 0.67%, unemployment is around 3%.
Sales tax is 4.7% that is charged at state-level, however, like many other states, there might be city or county-based additional taxes as well and this can raise the total sales tax to upto 6.85%.
Although there is no state-level sales tax in Oregon and a very low average effective property tax (around 1.27%). But when it comes to corporate tax, 6.6% will be charged for the first $1mn income bracket and 7.6% on income past the $1mn mark.
Also, the individual income tax is between 5%-9.9%, it depends on the individual’s income.
Ranked at the bottom of the top 10 best US states for LLC formation, the state of Indiana charges a corporate tax of around 4.9%, sales tax is 7%, unemployment stands at 3.3% and avg. effective property tax is around 0.87%. Individual income tax is 3.23% and there might be an addition of around 0.01% – 0.021%, depending on which specific county you are based in.
As a business owner, these numbers might seem to be a little unfavorable. However, they are still considered to be a lot better than the states that are mentioned below.
10 Worst US States for LLC Formation
Let us now have a look at the top 10 worst US states to start a new LLC:
The worst US state for a new LLC formation is the state of New Jersey.
This is mainly because the corporate tax is 9% (7.5% is charged if net income is between $50,001 – $100,000 and 6.5% if your LLC’s net income is less than $50k). Moreover, sales tax is 6.62%, unemployment is 4.3% and avg. effective property tax is 2.4%.
Individual income tax has three tax brackets:
- 3.5% if net income is $35,000 – $500,000
- 8.97% if net income is $500,001 – $5,000,000
- Net income of above $5mn is taxed at 10.75%
As you can clearly see, these stats do not provide favorable business opportunities for new business owners or entrepreneurs.
The state of California charges an individual income tax of 13.3% for a net income exceeding $1,000,000. Corporate tax is also on the higher side – at 8.84%, while sales tax is 7.25% and avg. effective property tax is around 0.80%.
Adding a 4.2% unemployment rate to the aforementioned numbers, running a new business can be quite challenging in California.
With a sales tax of 4% (that goes upto 8.87% including use tax in NYC), the state of New York charges a 6.5% corporate tax, average effective property of 1.65% and unemployment rate stands at around 4.5%.
The individual income tax varies between 4% – 8.82% on the following basis:
- Net income of above $1,077,550 if filed as a single person
- Net income of above $2,155,350 if filed as a married couple
Yes, these numbers are on the higher side when it comes to new LLC formation.
Ranked as the 4th worst US state for an LLC formation, the state of Connecticut charges a 9% corporate tax, 6.35% sales tax and an avg. effective property tax of around 2%.
The individual income tax varies between 3% – 6.99% for net income above $500,000. Again, these are challenging business conditions for a new entity, keeping into considerations other internal or external challenges that the business might have to deal with in addition to the tax rates.
Another not-so-good state to form your LLC in. Minnesota will charge you a corporate tax of 9.8%, sales tax of around 6.9% (upto 8.4% in some areas), avg. effective property tax of 1.19% and an unemployment rate of 3.1%.
Individual income tax is between 5.35% – 9.8% for a net income exceeding $266,700.
The state of Ohio comes at #6 in this list, with a sales tax of 5.75% (up to 8% in some counties), avg. effective property rate of 1.55% and a commercial activity tax of 0.26% for companies that have a yearly gross income of $1mn or more.
For incomes less than $10,000, there is no individual income tax in Ohio. If net income is $213,000 or more, the number goes up to 5% plus a fixed rate of $8,178.
There is no corporate tax in Ohio, may be the only good news for you as an entrepreneur.
This state charges a corporate tax of 8.25%, sales tax stands at 6%, avg. effective property tax is 1.21%.
The individual income tax is charged at 5.75% for new incomes of $300,000 or more, with an additional 1.75%-3% income tax that might be charged in some counties.
Although this state has a relatively lower sales tax (4.45%) and avg. effective tax (0.51%), however the corporate tax is between 4% – 8% for income over $200,000.
Individual income tax stands at 6% with a 4.7% unemployment in the state. These numbers might not be as bad as the rest of the states in this list, however, they might still give you a tough time if you are planning to form your LLC in Louisiana.
With a high individual tax of up to 8.95% on net incomes above $416,650, a corporate tax of 8.5% for income above $25,000 and a sales tax of 6% that could go up to 7% in some counties, the state of Vermont is also one of those states where you wouldn’t want to commence your business activities.
Although the avg. effective property tax and unemployment rate is low, 1.71% and 2.8% respectively.
The state of Iowa charges an individual income tax of 8.98%, corporate tax ranges from 6% – 12% for net business income above $25,000 and a sales tax of 6%.
Avg. effective property tax stands at 1.49% and unemployment is 2.8% – something to cheer for if you are contemplating to form your LLC in this state.