Every year the Small Business and Entrepreneurship Council releases a list that ranks each state based on the friendliness of its tax system to small businesses. This year, Texas was ranked number one and our very own California came in dead last.
A state's tax system can be a major part of its attractiveness to small businesses. 2013 has seen a series of federal tax increases. A state's individual tax code can either alleviate or increase that burden.
To determine the rankings, the council looked at 21 factors, including personal income tax rates, capital gains tax rates, death taxes and whether a state has an "Amazon" tax for online sales. Other states in the bottom five include Hawaii, New Jersey, Iowa and Vermont.
California may not have impressed the Small Business & Entrepreneurship Council with its small business tax system but that doesn't mean the state is all gloom and doom for small businesses. California has a lot to offer small businesses, such as tax incentives for new businesses and entrepreneurs. In addition, California has a highly educated work force, access to transportation and a strong entrepreneurial spirit.
If you are running a small business or considering starting one in California, don't let the state's tax system dissuade you too strongly. There are ways to maximize your tax benefits within state and federal tax law. An experienced tax law attorney can help you review your financial situation and help you plot the best tax strategy for your business.
Source: Small Business Trends, "Texas Tops List of Best Small Business Tax Systems, California at Bottom," Joshua Sophy, April 22, 2013