Entrepreneurship

These Are the Cheapest and Most Expensive States for Running a Business in 2021

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Running your own business is always a challenge. It might be slightly easier in the Lone Star State.

According to a new study from enterprise cloud software platform Approve.com, Texas is the country's least expensive state for running a business. The study weighed factors like average annual wage, top corporate income tax rate, and average prices for utilities like electricity and internet. The study included the District of Columbia, but omitted Alaska and Hawaii due to "unavailable data."

Here are the country's five least expensive states for running a business, according to the study:

  1. Texas
  2. Oklahoma
  3. Kentucky
  4. Nevada
  5. Georgia

Texas tops the list thanks to its tax policies and utilities costs. The state does tax businesses with annual revenues above $1,180,000 at a rate of 0.375%, but its corporate tax laws are considered to be among the friendliest to businesses in the country.

Perhaps that's why Tesla co-founder and CEO Elon Musk announced last week that his company is moving its headquarters from Palo Alto, California, to Austin. Tesla will join Oracle, Hewlett Packard Enterprise, Charles Schwab and plenty of other companies that have moved their headquarters to Texas recently.

Of course, it's not always only about the money. Some of those same companies have faced criticism for moving operations to the state, in the wake of multiple controversial political decisions by Texas lawmakers — including the state's new restrictive voting laws, a law effectively banning abortions and bans on Covid vaccine and mask mandates.

The study also ranked the country's five most expensive states for running a business:

  1. California
  2. New Jersey
  3. Vermont
  4. District of Columbia
  5. Iowa

California workers have the nation's ninth-highest average annual wage, at $47,290 per year. The state also easily has the country's highest electricity prices, averaging 17.7 cents per kilowatt hour.

A February study by the UC Berkeley Haas School of Business found that customers of Pacific Gas and Electric Company (PG&E), California's largest utility, pay nearly 80% more per kilowatt-hour than the national average, due to both wildfire-related costs and fixed costs associated with the state's energy efficiency programs.

Vermont is something of an outlier on this ranking: The Green Mountain State is one of the least populous in the U.S., which typically correlates with lower start-up costs. However, the Approve.com study noted that Vermont has the second-highest electricity costs in the country — and, perhaps more notably, the ninth-highest top corporate income tax rate, at 8.5%.

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