The Best U.S. States for Small Businesses in 2025 (Taxes, Regulations & Insurance—What Really Matters)

Choosing where to launch or expand a small business can be as consequential as your product strategy. “Best” isn’t one-size-fits-all: a solo consultant cares about marginal tax on pass-through income; a retailer sweats sales-tax compliance and licensing; a contractor watches workers’ comp and unemployment insurance costs; and everyone worries about red tape. Below is a practical, 2025-ready guide that blends tax competitiveness, licensing burdens, and core insurance requirements so you can pick a state that matches your business model—not just a headline ranking.

How we evaluated (and what changed for 2025):

• Tax competitiveness: We lean on the Tax Foundation’s 2025 State Tax Competitiveness Index, which compares states across individual and corporate income, sales, property, and unemployment insurance taxes. The 2025 top 10, in order: Wyoming, South Dakota, Alaska, Florida, Montana, New Hampshire, Texas, Tennessee, North Dakota, Indiana. Tax Foundation
• Sales tax reality: Five states still have no state-level sales tax (AK, DE, MT, NH, OR). That can simplify in-state sales—but after the Wayfair decision, most remote sellers must collect in the buyer’s state when they meet “economic nexus” thresholds, so being in a no-sales-tax state won’t exempt you from multi-state compliance. Tax FoundationAvalara
• Licensing frictions: Occupational licensing can be a hidden startup cost for trades, salons, and many services. The Institute for Justice’s latest nationwide study shows substantial training, testing and fee burdens in many states—worth checking for your occupation. Institute for Justice+1
• Insurance & payroll taxes: Workers’ compensation is mandatory virtually everywhere (with a Texas exception), and rate levels vary by state and industry. The Oregon DCBS biennial study remains the gold standard for comparing workers’ comp premium levels across states. Unemployment insurance (SUTA) rates are state-specific and experience-rated, with wide ranges. Texas Department of InsuranceOregonOUI

The best states overall—and who they fit

1) Wyoming – Ideal for pass-throughs and asset-light firms
Wyoming ranks #1 overall and imposes no individual or corporate income tax. Many small professional services, consultancies, and holding companies prize that simplicity. Note that property taxes still matter for asset-heavy firms. Tax Foundation+1

2) South Dakota – Lean and simple, especially for services
No individual or corporate income tax, straightforward compliance, and a business-friendly tax mix. Strong fit for location-agnostic service businesses and back-office operations. Tax Foundation

3) Alaska – Great for in-state retail (no state sales tax) and pass-throughs
Alaska lacks both an individual income tax and a state-level sales tax (local sales taxes can apply). Good for local retail and hospitality where the absence of state sales tax lowers in-state checkout friction. Tax Foundation

4) Florida – Popular for solo pros and agencies; big market, no wage income tax
Florida’s top-tier ranking is driven by no individual income tax and competitive overall structure. Many pass-through owners like the personal tax treatment; corporations should still review the state corporate income tax. Tax Foundation+1

5) Montana – Retailers with storefronts love the no-sales-tax reality
Montana’s lack of a state sales tax is a genuine upside for in-state brick-and-mortar retail; e-commerce firms still face multi-state collection when they hit other states’ thresholds (post-Wayfair). Tax FoundationAvalara

6) New Hampshire – Now a true no-income-tax state (and no state sales tax)
As of January 1, 2025, NH repealed its Interest & Dividends tax, making it a no-income-tax state alongside no general sales tax—very attractive for pass-through owners and local retailers. Keep an eye on property tax levels when you own real estate. NH Revenue AdministrationTax Foundation

7) Texas – Big market, no individual income tax, unusual workers’ comp rule
Texas combines scale with no individual income tax. Unique twist: most private employers can opt out of workers’ comp (many still carry it due to contracts/risks). Property taxes and local sales taxes merit modeling for brick-and-mortar firms. Texas Department of Insurance

8) Tennessee – Strong for pass-throughs; watch sales tax on B2C
No individual income tax on wages, but high combined sales tax averages mean B2C sellers should price accordingly. Good environment for agencies and software consultancies with low taxable sales. Tax FoundationKiplinger

9) North Dakota – Balanced profile with competitive property tax rank
North Dakota pairs mid-pack sales tax with favorable property tax ranking—handy for firms with equipment or owned real estate. Economic Development

10) Indiana – Manufacturing-friendly mix with efficient UI & comp costs
Indiana’s stable, relatively low-cost environment—including competitive workers’ comp premium levels—appeals to manufacturers and logistics firms. Oregon

“Best by business type” (quick matches)

• Solo pros, agencies, consultancies (pass-through income): Wyoming, South Dakota, Florida, New Hampshire, Texas, Tennessee—all rank high and avoid taxing wage income at the state level. Compare local property tax when you plan to buy (NH, TX can be higher). Tax FoundationEconomic Development
• In-state retail & hospitality: Alaska, Montana, New Hampshire, Oregon, Delaware stand out for no state sales tax, which simplifies in-state checkout. For e-commerce selling across state lines, Wayfair rules mean you’ll likely collect where customers live after hitting thresholds—plan for multi-state compliance software. Tax FoundationAvalara
• Asset-heavy or equipment-intensive businesses (light manufacturing, trades): Indiana and North Dakota (strong property-tax component ranks) plus states with lower workers’ comp premiums like Utah, Indiana, and Ohio in the 2024 Oregon study. Economic DevelopmentOregon
• Marketplace & high-volume e-commerce: Consider administrative ease more than “no sales tax”. Streamlined Sales Tax states can simplify registrations/filings across multiple jurisdictions via a single application. Also note that many states are dropping the old 200-transaction threshold while keeping a revenue threshold (e.g., $100k), reducing nuisance exposure for low-ticket sellers. DefaultAvalara
• Hospitality & tourism in Nevada: No individual income tax and business-friendly posture, but remember the Commerce Tax is a gross-receipts tax that kicks in only if Nevada-sourced revenue exceeds $4 million—not relevant to most small firms, but crucial as you scale. Nevada Department of Taxation+1

The insurance & payroll-tax angle (don’t skip this)

• Workers’ compensation (WC): Required for most employers in most states; Texas is the outlier where private employers can generally choose to go without (many still buy coverage to manage risk and meet contract requirements). Premium levels differ materially by state and NAICS class; the 2024 Oregon DCBS study remains the standard comparison across states and shows the lowest index rates in places like Utah and Indiana. Texas Department of InsuranceOregon
• Unemployment insurance (SUTA): State-run, experience-rated, and updated annually. As examples, North Carolina set a 2025 taxable wage base of $32,600 with rates from 0.06% to 5.76% depending on your experience class; the U.S. DOL explains how FUTA credits interact with state UI so you can forecast total payroll tax. NC Division of Employment SecurityOUI
• General liability, property & commercial auto: These are market-priced rather than state-taxed, but costs trend lower in states with fewer litigation risks and lower loss costs. Ask your broker to quote in multiple states if you’re mobile; in construction and healthcare, regulatory specifics (and contracts) will dictate limits.

Important watch-outs that change the “winner” for some businesses

• High sales taxes where you sell: Even if your home state looks tax-friendly, combined state + local sales taxes can be high where your customers are (e.g., Tennessee, Louisiana, Washington). For B2C firms, that affects checkout prices and demand. Kiplinger
• “No sales tax” ≠ “no tax”: Delaware has no sales tax but imposes a gross-receipts tax (rates vary by activity) that can matter as you grow. Nevada has the Commerce Tax above $4M Nevada-sourced revenue. Model these if your revenue concentrates in-state. Division of Revenue – State of DelawareNevada Department of Taxation
• New for 2025—New Hampshire: With the I&D tax repealed effective Jan. 1, 2025, NH is now squarely a no-income-tax state, joining the other eight. If you considered NH before but were concerned about I&D, revisit the math. NH Revenue Administration

Bottom line

If you want a straightforward, low-tax default for a service business, the perennial leaders—Wyoming, South Dakota, Florida, New Hampshire, Texas, Tennessee—are hard to beat. If you’re a local retailer, Alaska, Montana, New Hampshire, Oregon, and Delaware can simplify in-state point-of-sale (but Wayfair still governs remote sales). Manufacturers and contractors should weigh property tax and workers’ comp alongside income taxes, which pushes states like Indiana and North Dakota up the list. And for high-growth firms that might cross Nevada’s $4M threshold, plan for the Commerce Tax as you scale.

Finally, ground your decision in your revenue mix, headcount plans, and where your customers (and risk) actually are. To validate assumptions with current data, check the 2025 SBA state profiles for your shortlist, then run a pro forma with your accountant and insurance broker. Office of Advocacy

Key sources for 2025 planning:
Tax Foundation 2025 State Tax Competitiveness Index and state pages; Sales Tax Rates (Midyear 2025); SBA 2025 State Profiles; Oregon DCBS 2024 Workers’ Comp Premium Study; Texas Department of Insurance WC guidance; Streamlined Sales Tax and Avalara on Wayfair economic nexus. Tax Foundation+2Tax Foundation+2Office of AdvocacyOregonTexas Department of InsuranceDefaultAvalara

Not legal or tax advice; confirm specifics with your CPA or attorney before forming or relocating.