Small business rankings

How we rank states

Every ranking on this page compares all 50 states plus Washington, D.C. using figures pulled from each state's official source, the Secretary of State for formation fees and the state Department of Revenue (cross-checked with the Federation of Tax Administrators) for tax rates. We normalize a few variables so states are genuinely comparable: the registered-agent estimate is held constant at $125 per year, total first-year LLC cost includes the filing fee plus the first annual or biennial report and any mandatory publication, and tax rates shown are top marginal state rates. We exclude optional services such as expedited filing and attorney fees, because those are choices rather than requirements.

The cheapest state to form an LLC is rarely the right state to form one in. You should generally register where your business has a physical presence, employees, or significant operations, forming out of state usually triggers foreign-registration fees in your home state that erase any savings, plus the cost of maintaining a registered agent in two places. Use these rankings to understand the landscape, then run your own numbers with our calculators.

Formation cost vs. ongoing cost

Two numbers decide what a state really costs a small business, and they often point in opposite directions. The first is the one-time formation cost, the filing fee you pay the Secretary of State to register your Articles of Organization, which ranges from about $40 in Kentucky to $500 in Massachusetts. The second is the recurring annual cost: the annual or biennial report fee, any franchise tax, and the registered-agent fee you'll pay every year for as long as the business exists. A state with a low filing fee but a steep annual franchise tax can be more expensive over five years than a state that charges more up front and nothing thereafter.

California is the classic example. Its $70 filing fee looks cheap, but every California LLC owes an $800 minimum franchise tax each year regardless of revenue or profit, so a California LLC costs more in its very first year than most states charge over three. Our cheapest-states ranking is built on total first-year cost precisely so these recurring charges aren't hidden behind an attractive filing fee.

What "best for taxes" actually means

Most small businesses are pass-through entities, sole proprietorships, single-member LLCs, multi-member LLCs, and S-corporations, which means the business itself pays no income tax. Instead, profits flow to the owners' personal returns and are taxed at the state's individual income tax rate. For these owners, the headline corporate tax rate is almost irrelevant; the personal income tax rate is what matters. That's why our tax ranking weighs personal income tax heavily, and why states with no personal income tax at all stand out for the typical small business.

But "no income tax" is rarely the whole story. Several no-income-tax states replace that revenue with a gross-receipts or franchise tax, Washington's Business & Occupation tax, Texas's franchise tax, Nevada's Commerce Tax, that taxes revenue rather than profit. For a low-margin, high-volume business, a gross-receipts tax can cost more than a modest income tax would. The right state depends on your entity type, your margin, and your revenue, which is exactly why a ranking is a starting point rather than an answer.

How to use these rankings

Start with the ranking that matches your decision. If you're choosing where to incorporate and have genuine flexibility, for example, an online business with no fixed location, the cheapest-states and best-tax rankings together show where the long-run burden is lowest. If you already know where you'll operate, skip the rankings and open that state's detail page for the exact filing fee, annual report schedule, and tax treatment. Either way, confirm the current figures with the official source before you file: formation fees and tax rates change every legislative session, and a ranking is only as current as its last update.

When these rankings change

State legislatures adjust filing fees, franchise taxes, and income tax brackets almost every year, and several states are in the middle of multi-year tax-cut phase-ins that move them up or down the list. Iowa, for instance, replaced its graduated income tax with a low flat rate, and Tennessee and New Hampshire have both eliminated taxes on personal and investment income in recent years. We revise these rankings as those changes take effect and note the verification date on each page, so a state that ranked poorly last year may look very different today. Treat any specific figure as a snapshot, and always check the official source before making a filing or relocation decision based on it.