The Best 5 States to Start a Small Business

Considering starting a business in the Tar Heel State.

Starting a small business can be a daunting task, but there are states that are more friendly to small businesses than others. To rank America's Top States for Business in 2022, CNBC used 88 different metrics in 10 broad categories of competitiveness. The categories were weighted by importance to a small business. The categories and weight are:

• Workforce: 16%
• Infrastructure: 15%
• Cost of doing business: 14%
• Economy: 13%
• Life, health, and inclusion: 13%
• Technology and innovation: 10%
• Business friendliness: 8%
• Education: 7%
• Access to capital: 2%
• Cost of living: 2%

Top five states to start a business

Based on recent data, here are the top five states to start a small business.

1. North Carolina

North Carolina moved up one spot to rank first overall with the top score in economy, number 2 in access to capital, and number 5 in technology and innovation. Its workforce is ranked 12th and the lowest rank for the state is in life, health, and inclusion, coming in at 28th. The cost of doing business is 26th, falling to the middle of the pack. The top individual income tax rate in the state is 4.99% and the top corporate tax rate is 2.5%.

2. Washington

Washington jumped from ninth in 2021 to second place this year. Its top ranking was technology and innovation, ranked second in the country. It is ranked 3rd in economy, 4th in workforce, and 6th in life, health, and inclusion. The lowest rank for the state was in cost of living, coming in at 38th. It is also near the bottom half of states when it comes to the cost of doing business at 33rd, and business friendliness at 31st. Washington has no income taxes (it has a 7% capital gains tax for those making over $250,000) or corporate taxes (it has a gross receipts tax).

3. Virginia

Virginia took the top spot to start a business in 2021 but dropped to number three this year. Its top ranking was education, ranked second in the country. It is ranked 6th in business friendliness and access to capital. The lowest rank for the state is in cost of living, coming in at 30th. Virginia is ranked in the top 50% of all its remaining categories. The top individual income tax rate in the state is 5.75% and the top corporate tax rate is 6%.

4. Colorado

Colorado has moved up four spots with its top ranking in workforce, ranked first in the country. It is ranked 9th in technology and innovation and 11th for economy and education. The lowest rank for the state is in cost of doing business, coming in at 36th. The top individual income tax rate and top corporate tax rate in the state is 4.55%.

5. Texas

Texas dropped one spot this year but is home to many wealthy businessmen such as Elon Musk. Its top ranking is workforce, ranked second in the country. It is ranked 3rd in access to capital, 4th in technology and innovation, and 8th in economy. The lowest rank for the state is in life, health, and inclusion, coming in at 49th. Texas has no individual income tax and no corporate taxes (it levies a gross receipts tax).

Bottom 5 states to start a business

Below are the bottom 5 states to start a business:

50. Mississippi

49. Alaska

48. Louisiana

46. New Mexico

46. Hawaii

While Mississippi is ranked first in having a low cost of living, it is dead last in business friendliness, 49th in economy, 48th in technology and innovation, 47th in workforce, and 46th in both infrastructure and education. Alaska doesn't fare much better, with its infrastructure and technology and innovation ranked last. Hawaii has the highest cost of living, highest cost of doing business, and the highest individual income tax rate in the country.

While America is ranked as one of the top countries in the world to start a small business, there is a wide disparity between each state. Interestingly, states like California and New York, known respectively for Silicon Valley and Wall Street, don't even crack the top 10. The high costs of living and doing business make it difficult for many small businesses in these states.