How to Choose a Tax-Friendly State for Your Business

1.  Understanding the U.S. Tax Landscape

• Federal Taxes: The IRS taxes all U.S.-source income. Corporate tax is currently 21%, and personal income tax rates range up to 37%.
• State Taxes: Each state can impose its own income tax, sales tax, corporate tax, franchise tax, etc.
• Local Taxes: Some cities and counties levy additional taxes.

Key Point: A tax-efficient state can significantly reduce your overall burden.

2.  Top Tax-Friendly States for E-2 / EB-5 Investors

• Florida
  • No personal income tax
  • Corporate tax: 5.5% (among the lower rates).
  • Business-friendly regulations.
  • Popular among Canadians for climate & proximity.
  • Ideal for: Hospitality, retail, real estate.
• Texas
  • No personal income tax.
  • No corporate income tax (but has a gross receipts tax called the franchise tax).
  • Strong economy and diverse industries.
  • Ideal for: Tech, oil & gas, logistics, manufacturing.
• Nevada
  • No personal or corporate income tax.
  • High privacy for business owners.
  • Higher sales tax (8.1% average) and cost of living in some areas.
  • Ideal for: Entertainment, hospitality, logistics.
• Tennessee
  • No wage income tax (but interest/dividend tax phased out in 2021).
  • Corporate income tax: 6.5%.
  • Business-friendly and low cost of living.
  • Ideal for: Healthcare, distribution, manufacturing.
• Wyoming
  • No personal or corporate income tax.
  • Low sales tax (~4%).
  • Low property and franchise taxes.
  • Ideal for: Startups, holding companies, remote businesses.

3. States to Be Cautious About (High Tax Burden)

• California: High personal income tax (up to 13.3%), 8.84% corporate tax.
• New York: High state and city taxes, corporate and franchise taxes.
• New Jersey: High property taxes, income taxes, and regulatory hurdles.
• Illinois: High corporate and personal income taxes.

If you still choose these states for strategic reasons (market, talent, industry), make sure you work with a qualified tax advisor to mitigate exposure.

4. Other Factors to Consider

• Sales Tax: Varies by state and affects retail-heavy businesses.
• Property Tax: Relevant if purchasing real estate for the business.
• Employment Taxes: Labor laws and employer contributions vary.
• State Incentives: Some states offer tax credits for job creation or investing in underserved areas (especially for EB-5).

5.  Example: Comparing Florida vs. California for E-2 Visa Business

A business earning $300,000 profit could save tens of thousands in taxes annually just by choosing the right state.

6. Final Tips Before Choosing a State

• Always consult a cross-border tax advisor familiar with U.S. and Canadian tax laws.
• Consider state-specific visa adjudication trends for E-2/EB-5 cases.
• Factor in lifestyle, industry presence, and long-term growth potential.

Conclusion

Choosing the right state isn’t just about sunshine or lifestyle — it’s a tax strategy decision.
Whether you’re on an E-2 visa exploring franchises or an EB-5 investor considering regional centers, smart location planning can mean lower taxes, better returns, and faster business growth.

Need help evaluating your options?
As a cross-border tax professional, I help Canadian investors navigate the U.S. tax maze with confidence. Reach out for a personalized consultation.

Disclaimer

This article is intended for informational purposes only and should not be considered tax, legal, or investment advice.
U.S. state tax laws and visa regulations can change frequently.
Please consult a licensed tax advisor and/or immigration attorney before making any decisions related to your visa, business acquisition, or tax strategy.