Want to Start a Business? Avoid These States

A few days ago, Yahoo Finance carried a story from U.S. News and World Report that listed the seven worst states for those Americans interested in starting their own business. As part of any market analysis, which presumably would be undertaken by someone filled with entrepreneurial spirit, geographical location is an important component. Tax rates, population base, business opportunity, etc., would, in all likelihood, be key considerations.

In their report, the folks at U.S. News decided to focus on those states that should be avoided when considering where to locate a new startup business. In compiling the list, U.S. News asked these questions: "What states are lagging in the economic advantages that entrepreneurs can use to create successful businesses? What state governments overreach in the costs they impose on businesses?" The 2008 New State Economy Index and the Small Business Survival Index 2008 were referenced for the U.S. News report. Here's what they found.

First up: West Virginia. Primary reasons for placement on the list included less-than-stellar economic prosperity, a lack of highly-educated people available for hire, high tax rates (corporate income, corporate capital gains tax rates, individual income, and capital gains tax) and low per capita income.

Number 2: Iowa. Why? According to U.S. News, "...relatively low investment in the things that make entrepreneurs succeed, and high government interference." Iowa also has high capital gains taxes and corporate income taxes, and high unemployment taxes on workers' wages.

Third on the list is Arkansas, with its high sales and excise taxes and lack of available knowledge workers. Coming in fourth is the great state of Maine (I was actually a little surprised by this one). U.S. News cites Maine's lack of a dynamic economy as a primary reason for its inclusion in their list of not-so-desirable states in which to start a business, along with Maine's high property taxes (second highest in the United States) and high personal income and individual capital gains taxes.

Number 5 on the list is Hawaii. Primary reasons for Hawaii's inclusion were listed as its third from the bottom ranking of states with respect to "...the export focus of its manufacturing and service sectors," along with its high taxes (sales, gross receipts, and excise taxes). I see a recurring theme here: high taxes are not conducive to successful business operations.

Sixth up for U.S. News is Kentucky due to its lack of an educated workforce, a lack of technological innovation, and high excise and personal income taxes. Last up is Montana, included on the list for its high worker's compensation costs, high individual tax rates and high unemployment taxes.

My surprise omission: Louisiana. I was born and raised in the Bayou State and have watched it experience a poor business climate my entire life. In the end, though, I guess Louisiana's statistics weren't enough for the bottom seven. I wonder if it would have made a list of 10?