Most and Least Expensive States to Start a Business

As more Americans figure out if they want to start a business, the costs and business environment in a location are likely to impact whether the company succeeds.

To help business owners make informed decisions, Simplify LLC analyzed nine business cost-related factors across four main categories in all 50 states and D.C.

Simplify found:

• Utah is the No. 1 least expensive state to start a business. Utah has strong small business administration lending of US$15.4 million per 100,000 residents (No. 2) and a high labor force participation rate of 68.3% (No. 4). Its LLC filing fee also ranks favorably at No. 11, while corporate income tax (4.65%, No. 14), wages ($63,854, No. 25), and electricity costs ($663.34, No. 26) remain moderate.

• California is the No. 1 most expensive state to start a business. Largely due to its 420,434 regulations—the highest in the nation. Sky-high electricity costs ($1,273.73, No. 49) and steep average wages ($87,490, No. 47) further drive-up expenses, while rent per square foot ($31.78, No. 39) and corporate income tax (8.84%, No. 33) remain burdensome.

• The 10 cheapest states are in the West or Midwest. Many states in the region do not levy a corporate income tax and aside from Colorado they have a relatively low number of regulations which helps level the playing field for small businesses. They also have lower fees for starting an LLC than other parts of the country.

• Surprisingly, Alabama is the No. 6 most expensive state. Not generally thought of as an expensive location, the state has high LLC filing fees ($200, No. 45) and low labor force participation (57.6%) which could limit workforce availability. Alabama has relatively high corporate income tax rates (6.5%, No. 31) and number of regulations (No. 25). Additionally, the state struggles with low SBA lending ($5.7M per 100,000 residents, No. 43).