Best states for small
business taxes in 2025
State taxes can add thousands to your annual cost, or almost nothing. We compared corporate income tax, personal income tax (what most pass-through LLCs and S-Corps actually pay), sales tax, and franchise/gross-receipts taxes across every state to find where small businesses keep the most.
The verdict
For most small businesses, pass-through LLCs and S-Corps, the personal income tax rate matters more than the corporate one. Nine states levy none at all, but several replace it with franchise or gross-receipts taxes, so the lowest-tax state depends on your revenue, margin, and entity type, not the headline rate.
Rates from each state's Department of Revenue and the Federation of Tax Administrators, verified January 2025. How we calculate →
States with no personal income tax
These nine states levy no broad personal income tax in 2025, which is especially attractive for LLC and S-Corp owners whose business income passes through to their personal returns. Most still impose other revenue mechanisms, franchise taxes, gross-receipts taxes, or higher sales taxes, that partly offset the absence of an income tax.
| State | Corp Tax | Sales Tax |
|---|---|---|
| Alaska | 0% | 0% (state) |
| Florida | 5.5% | 6% |
| Nevada | 0% | 6.85% |
| New Hampshire | 7.5% | 0% |
| South Dakota | 0% | 4.2% |
| Tennessee | 6.5% | 7% |
| Texas | 0% | 6.25% |
| Washington | 0% | 6.5% |
| Wyoming | 0% | 4% |
Highest-Tax States for Small Business
These states combine high corporate tax rates, steep personal income tax brackets, and above-average sales taxes. Small businesses operating here face the highest combined state-level tax burden in the country.
| State | Corp Tax Rate | Top Personal Rate | Sales Tax |
|---|---|---|---|
| New Jersey | 11.5% | 10.75% | 6.625% |
| California | 8.84% | 13.3% | 7.25% |
| New York | 7.25% | 10.9% | 4% |
| Hawaii | 6.4% | 11% | 4% (GET) |
| Minnesota | 9.8% | 9.85% | 6.875% |
How Entity Type Affects Your State Tax Burden
Your business entity type determines which state taxes apply to you. Sole proprietorships and single-member LLCs report business income on the owner's personal state tax return (Schedule C), so the state personal income tax rate is the primary variable. Multi-member LLCs and S-Corps are also pass-through entities, the business itself does not pay state income tax, but the owners pay personal income tax on their share of profits at the state's individual rate.
C-Corporations are subject to state corporate income tax in addition to the 21% federal rate. This creates double taxation: the corporation pays state and federal tax on profits, then shareholders pay personal income tax on dividends received. For small businesses that plan to retain earnings rather than distribute them, the C-Corp structure can sometimes be advantageous at the federal level, but high state corporate tax rates (like New Jersey's 11.5%) can erode that benefit quickly.
Beyond income tax, several states impose franchise taxes or gross receipts taxes that apply regardless of entity type. Texas levies a franchise tax only on businesses with revenue above $2.47 million (2024 threshold), calculated on gross margin at a rate of 0.375% to 0.75%. Washington's Business and Occupation (B&O) tax applies to gross receipts at rates ranging from 0.138% to 1.5% depending on classification. Ohio's Commercial Activity Tax now exempts businesses with gross receipts under $6 million (2025), up from $150,000 in prior years. These taxes are particularly impactful for low-margin, high-volume businesses because they tax revenue, not profit.
Methodology
Tax rates sourced from each state's Department of Revenue and the Federation of Tax Administrators, verified as of January 2025. Corporate rates shown are the top marginal rate. Personal income tax rates are the top bracket for single filers. Sales tax rates are the state-level base rate and do not include local add-ons. See our full methodology for details.