FSB Who loves small business best? 2006
Which states are low on taxes and light on government regulations? Exclusive rankings for FSB.com from the Small Business & Entrepreneurship Council.*
How we ranked the states

Which states are low on taxes and light on government regulations? In these exclusive rankings for FSB.com, the Small Business & Entrepreneurship Council, a nonprofit advocacy group in Washington, D.C., used their Small Business Survival Index to rate the 50 states and Washington, D.C. according to some of the major government-imposed or -related costs affecting investment, entrepreneurship, and business. SBE Council, which advocates for reduced government taxes and regulations on small business, tends to lobby for the Republican agenda on taxes and regulations. The SBE Council's annual index is based on the 29 criteria below:

• Personal Income Tax. A state's top personal income tax rate. Roughly 90 percent of businesses file taxes as individuals (e.g., sole proprietorships, partnerships and S-corporations), according to the SBE Council, and therefore pay personal income taxes rather than corporate income taxes. Source: CCH Incorporated, 2006 State Tax Handbook, the Federation of Tax Administrators (www.taxadmin.org), and state-specific sources. Note: Personal income tax rates reflect deductibility of federal income taxes in certain states.

• Capital Gains Tax. Each state's top capital gains tax rate on individuals. Source: CCH Incorporated, 2006 State Tax Handbook, the Federation of Tax Administrators (www.taxadmin.org), and state-specific sources. Note: Capital gains tax rates reflect deductibility of federal income taxes in certain states.

• Corporate Income Tax. Each state's top corporate income tax rate. Source: CCH Incorporated, 2006 State Tax Handbook, the Federation of Tax Administrators (www.taxadmin.org), and state-specific sources. Note: Corporate income tax rates reflect deductibility of federal income taxes in certain states.

• Additional Income Tax on S-Corporations. Additional income tax imposed on S-Corporations beyond the top personal income tax rate. Subchapter S Corporations allow certain businesses to adopt the benefits of a corporation, while allowing income to pass through to be taxed at the individual level. Most states recognize S Corporations, but a few either tax such businesses like other corporations or impose some kind of added tax. Source: CCH Incorporated, 2006 State Tax Handbook, and state-specific sources.

• Individual Alternative Minimum Tax. State individual alternative minimum tax (states with an individual AMT receive a score of "1" and states that do not receive a score of "0"). The individual alternative minimum tax (AMT) imposes a minimum tax rate that must be paid by individuals, regardless the tax credits or deductions taken. Source: CCH Incorporated, 2006 State Tax Handbook.

• Corporate Alternative Minimum Tax. State corporate alternative minimum tax (states with a corporate AMT receive a score of "1" and states that do not receive a score of "0"). The corporate alternative minimum tax (AMT) imposes a minimum tax rate that must be paid by corporations, regardless of the available tax credits or deductions taken. Source: CCH Incorporated, 2006 State Tax Handbook.

• Indexing Personal Income Tax Rates. State indexing of personal income tax rates (states indexing their personal income tax rates receive a score of "0" and states that do not receive a score of "1"). In states that index income tax rates, inflation does not push individuals into higher tax brackets. Source: www.taxadmin.org

• Property Taxes. State and local property taxes as a share of personal income. Source: 2003-04 latest state and local numbers available from the U.S. Bureau of the Census, U.S. Department of Commerce.

• Sales, Gross Receipts and Excise Taxes. State and local sales, gross receipts and excise taxes [less revenues from gas taxes, since gas tax rates are singled out separately] as a share of personal income. Source: 2003-04 latest state and local numbers available from the U.S. Bureau of the Census, U.S. Department of Commerce.

• Estate or Inheritance Taxes. States levying estate or inheritance taxes receive a score of "1" and states that do not receive a score of "0". Source: CCH Incorporated, 2006 State Tax Handbook, "CCH Financial Planning Toolkit" at www.finance.cch.com, and a variety of news stories.

• Unemployment Tax Rates. Unemployment tax rate is adjusted as follows: maximum state tax rate applied to state wage base as a share of state average wage. Source: Latest data on maximum rates and taxable wage base from "CCH Business Owner's Toolkit" at www.toolkit.cch.com/text/P07_1294.asp, and 2005 average wages from the U.S. Bureau of Labor Statistics at www.bls.gov/bls/blswage.htm#State.

• Health Care Regulation: Guaranteed Issue for Small Groups. State mandate for guaranteed issue in the small group market (state requiring guaranteed issue gets a score of "1" and states not requiring gets a score of "0"). Guaranteed issue means that individuals may not be turned down for health insurance coverage no matter the condition of their health or risk status. Source: "Small Group Health Insurance Market Guaranteed Issue 2005" from the Henry J. Kaiser Family Foundation at www.statehealthfacts.kff.org.

• Health Care Regulation: Guaranteed Issue for Self-Employed Group of One. State mandate for guaranteed issue in the self-employed group of one market (state imposing guaranteed issue gets a score of "1" and states not imposing gets a score of "0"). Guaranteed issue means that self-employed individuals may not be turned down for health insurance coverage no matter the condition of their health or risk status. Source: "Small Group Health Insurance Market Guaranteed Issue 2005" from the Henry J. Kaiser Family Foundation at www.statehealthfacts.kff.org.

• Health Care Regulation: Community Rating. State mandate for community rating in the small group market (state with rate bands gets a score of "0.33"; state with adjusted community rating gets a score of "0.66"; state with pure community rating gets a score of "1"; and a state without community rating gets a score of "0"). Community rating means that insurers must charge the same price to everyone in a community. Source: "Small Group Health Insurance Market Rate Restrictions 2005" from the Henry J. Kaiser Family Foundation at www.statehealthfacts.kff.org.

• Health Care Regulation: Number of Mandates. Number of mandates imposed (state gets a score of 0.05 for each mandate imposed). Some states have other regulations beyond guaranteed issue and community rating on insurers. This measures the number of mandated benefits on insurers. Source: "Health Insurance Mandates in the States 2006," prepared by Victoria Craig Bunce, JP Wieske, and Vlasta Prikazsky, Council for Affordable Health Insurance, March 2006.

• Electricity Costs. State's electricity cost index (index of state's average revenue per kilowatthour for electricity utilities). Source: Data for January to May 2006 from the U.S. Energy Information Administration, Electric Power Monthly, August 2006.

• Workers' Compensation Costs. State workers' compensation benefits per $100 of covered wages. Source: 2004 data from "Workers' Compensation: Benefits, Coverage, and Costs, 2004," National Academy of Social Insurance, July 2006.

• Total Crime Rate. State's crime rate per 100 residents. 2004 data from the U.S. Federal Bureau of Investigation, Crime in the United States 2004.

• Right to Work. Right-to-work states receive a score of "0"; non-right-to-work states receive a score of "1." In right-to-work states, employees are not required to join a union or pay union dues to work at companies with labor unions. Source: National Right to Work Legal Defense Foundation.

• Number of Bureaucrats. State and local government bureaucrats (full-time equivalent employees per 100 residents). Source: 2005 data from the U.S. Bureau of the Census, U.S. Department of Commerce.

• Tax Limitation States. States without some form of tax limitation check receive a score of "1," and states with some kind of tax limitation check receive a score of "0". Tax limitation states require more than a majority vote from elected officials or voters to raise or impose taxes. Source: National Conference of State Legislatures at www.ncsl.org.

• Internet Taxes. States without a sales tax on Internet access score "0," and states with such taxes score "1"). Source: Steven Maguire and Nonna Noto, "Internet Taxation: Issues and Legislation in the 109th Congress," CRS Report for Congress, February 2, 2006.

• Gas Tax. State gas tax (dollars per gallon). Source: "Notes to State Motor Fuel Excise and Other Tax Rates," July 1, 2006, American Petroleum Institute.

• State Minimum Wage. State minimum wage minus the federal minimum wage. Some states have a state minimum wage higher than the federal minimum of $5.15 an hour. Source: U.S. Department of Labor, "Minimum Wage Laws in the States " at www.dol.gov., and the AFL-CIO at www.aflcio.org.

• State Legal Liability Costs. State liability score (mean grades based on survey of corporations to assess the fairness and reasonableness of state liability systems in eight key areas). Source: Harris Interactive, "2006 U.S. Chamber of Commerce State Liability Systems Ranking Study," U.S. Chamber Institute for Legal Reform, March 17, 2006. Note: This study did not include Washington, D.C., so its score on the Index is underestimated.

• Regulatory Flexibility Status. States with full and active regulatory flexibility statutes score "0", states with partial or partially used regulatory flexibility statutes score "0.5", and states with no regulatory flexibility statutes score "1". The SBA's Office of Advocacy has led a campaign to have states pass their own versions of the federal Regulatory Flexibility Act. The idea of regulatory flexibility laws is to require state agencies to assess the economic impact before imposing regulations, consider less burdensome alternatives, allow judicial review of the process, and periodically review all regulations. Source: U.S. Small Business Administration, Office of Advocacy, "State Regulatory Flexibility Model Legislative Initiative," May 2006.

• Trend in State and Local Government Spending. Index of the latest five-year growth rate in per capita state and local government expenditures. Source: 2003-04 vs. 1998-99 data from the U.S. Bureau of the Census, U.S. Department of Commerce.

• Per Capita State and Local Government Spending. Index of per capita state and local government expenditures. Source: 2003-04 data from the U.S. Bureau of the Census, U.S. Department of Commerce.

• Protecting Private Property. Constitutional protections of private property are scored according to the provisions from each state's constitution dealing with eminent domain powers (Scores: "0" when eminent domain is limited to only "public use" and there are clear restrictions/definitions and/or general prohibitions against using eminent domain for "private use"; "1" when eminent domain is simply limited to "public use"; "2" when eminent domain is allowed for a "public purpose" or when "public use" provision presents potential loopholes; or "3" when eminent domain is allowed for private use, economic development or vague blight purposes). Source: Institute for Justice, Castle Coalition, "Current State Constitutional Provisions About Eminent Domain," www.castlecoalition.org.

Plus:

• Gas Prices. States were given an index score by the SBEC based on electricity costs and gas prices. Gas prices are not part of the SBE Council's Small Business Survival Index. They are included in FSB.com's Energy Costs data.


Next: See the full list Top of page

Low taxes
1 South Dakota
2 Nevada
3 Wyoming
Low energy costs
1 Kentucky
2 West Virginia
3 Missouri

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.