The past three years have seen a dramatic increase in the number of business apps. The COVID-19 pandemic has also sparked a boom in entrepreneurship that shows no sign of slowing down anytime soon. The cost of living in the US by state varies significantly, and choosing where to incorporate can have a big impact on a company’s bottom line, with fees running into the thousands per year depending on the selected state. Taxes, fees, rents, and wages differ significantly, and here are the best states for new businesses in 2026.
What Makes a State Cheap for Business
There are several cost-related factors that can either help or hurt your bottom line. Corporate tax rates can be anywhere from 0% to nearly 12% depending on your location. Filing fees for an LLC can be anywhere from $40 to more than $500 for the same paperwork. Rent for commercial space can be twenty times more in Manhattan compared to Oklahoma City.
The Tax Foundation reports 2024 State Business Tax Climate Index for the states for a variety of taxes – corporate, individual, sales, property, and unemployment insurance. States like Wyoming, South Dakota, and Alaska continually rank high on the list because of their friendly tax policies.
Top Cheapest States for Starting a Business in 2026
Seven states stand out for entrepreneurs prioritizing cost efficiency. Each offers distinct advantages depending on business type and growth plans. The following table compares key metrics across the most affordable states:
State | LLC Filing Fee | Corporate Tax | Annual Report Fee | Cost of Living Index |
Wyoming | $100 | 0% | $60 | 91.6 |
South Dakota | $150 | 0% | $50 | 92.8 |
Utah | $54 | 4.65% | $20 | 101.4 |
Arkansas | $45 | 1-5.3% | $150 | 89.0 |
Indiana | $95 | 4.9% | $32 | 90.6 |
Ohio | $99 | 0% (most businesses) | $0 | 93.3 |
North Carolina | $125 | 2.5% | $200 | 95.8 |
Wyoming is receiving more LLC incorporations than its population warrants. With zero corporate income tax, zero personal income tax, and excellent privacy benefits, it is the default option for many online businesses. According to the Wyoming Secretary of State, there are over 200,000 active business entities in the state, with fewer than 600,000 people residing within its borders.
South Dakota offers similar benefits to those of Wyoming but with slightly more developed infrastructure. Utah surprised many with its combination of low costs and an exploding tech scene near Salt Lake City. Arkansas is still flying under the radar with its lowest cost of living in America.
States to Avoid: Highest Startup Costs
Four states always rank as the most expensive for new businesses. The difference in cost between the least expensive and most expensive states is in the tens of thousands of dollars per year. California has an $800 minimum franchise tax, no matter what the business brings in. A business that makes zero dollars in revenue still has to pay California $800 per year just to be in business. Then there are the highest state income taxes in the country and very pricey commercial property.
Choosing expensive states still makes sense for specific situations:
- Businesses require physical presence near customers or partners in those regions.
- Industries with talent pools concentrated in coastal metros.
- Companies needing access to specific investor networks.
- Retail operations targeting wealthy consumer demographics.
New York, in addition, has high taxes and high commercial rents. Massachusetts and New Jersey make up the rest of the pricey group. These states charge high corporate taxes, high filing fees, and high labor costs due to high housing prices.
Tax Considerations by State
Tax structures vary greatly and have a big impact on the earnings a period or two after start-up. The states that don’t have a corporate income tax are Wyoming, South Dakota, Nevada, Ohio (for most businesses), Texas and Washington.
They finance their operations through other means, like sales taxes or fees from mineral exploration. The IRS has a Small Business and Self-Employed Tax Center that offers federal guidelines. However, this does not apply uniformly across all states.
Nine states have no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Corporate tax rates among states that do impose them:
- North Carolina charges 2.5%, the lowest rate among taxing states.
- Colorado and Arizona both impose flat 4.5% rates.
- Indiana dropped to 4.9% after gradual reductions.
- Iowa recently reformed its system to reach 5.5%.
- New Jersey tops the list at 11.5% for large corporations.
Long-term profitability calculations should model tax impact over five to ten years. A 5% rate difference on $500,000 annual profit equals $25,000 in additional taxes annually. Over a decade, that compounds to $250,000 plus lost investment returns on that capital.
Conclusions
The Midwest and South states dominate the affordability lists for starting a business. Wyoming and South Dakota provide unparalleled tax benefits for businesses without physical presence requirements. Arkansas and Indiana provide low costs for operations that require a physical presence in a region.
The entrepreneur must consider affordability and growth opportunities. Cheap states may not provide access to talent, investors, or customers like expensive states. It depends on the nature of your business, industry, and growth strategy, not just costs.
Key factors to consider for 2026: corporate tax rates continue to drop in competitive states, work from anywhere provides flexibility, and filing fees can add up over time. It may make more sense to start low and scale up than to overpay from day one.
