Taxes are something every business owner has to consider. Most of the time, however, if a person is living in a particular state, and they want to start a business, they are going to start it right there where they live. That being said, a number of states have no personal income tax. This is a big benefit when starting a business, especially a sole proprietorship, where earnings are going to be taxed at personal income tax rates. It is important to consider what the tax rates are going to be, so you can best determine how to structure your business, as well as options that will help manage taxes. Florida is a state that has no state income tax. This will clearly benefit sole proprietorships, and LLCs, especially when the business starts turning a profit.
The downside to states that do not have personal income taxes is that they are rather clever about making this money up in other ways. Very good examples of this are Texas and New Hampshire, where there is no personal state income tax, but they have some of the highest property taxes in the country. Florida, however, has the highest rate of new businesses being started than any other state in the union. There is, within this number, a very high number of those who are self-employed in financial services. With so many retirees in Florida, this makes sense, however, it also artificially inseminates the numbers relative to what is actually going on.
Some of the metrics used to determine what a good state is relative to starting a business include state policies regarding import/export, entrepreneurship and innovation, talent pipeline, business climate and infrastructure. If someone is looking to relocate to a state where starting a business is both inexpensive as well as supported by a solid local infrastructure, there are a number of places where they could do better than Florida. That being said, Florida does place in the top 5 of states with the lowest tax burdens on its residents and businesses.
Florida does have a corporate income tax, however. Individuals do not pay taxes, but corporations, and other artificial entities, must file a corporate income tax return. It must be filed even if no taxes are due. There corporate income tax rate is currently 5.5%. Certain business must also pay reemployment tax, which is basically unemployment tax. It is used to provide partial income to employees who lose their jobs through no fault of their own. The corporate income tax, when considered in conjunction with the reemployment tax, may not exactly make starting a business in Florida as practical from a tax perspective; it all depends on individual circumstances.
One type of tax that many states have, but that Florida does not, is a franchise tax. This type of tax is also known as a privilege tax, as it essentially is a tax on affording owners the right to do business in a state. IN addition, Florida does have some of the lowest overall tax rates for residents, which is currently at roughly 7.4%. This is overall current taxation and included in this number are property and local sales taxes. Wyoming, Alaska and Nevada are the only states with lower overall individual tax rates than Florida.
With the proliferation of ecommerce, businesses can basically be started from anywhere. The costs of moving to another state to start a business might be a bit nonsensical. It might be best to stay in whatever state you currently reside, provided there is an adequate customer base for your product, and instead of moving, hire a good accountant to help you manage taxes very efficiently. That is likely the best way to proceed no matter where a business is started, and in the end, the are too many variable per situation to adequately assess definitively if taxes for doing business in Florida are less expensive than other states. On that note, they have a fairly competitive overall business climate, which likely means more than even taxes do, because it shows they are a business-friendly state looking to maintain a stable economy for residents.