South Dakota, Nevada and Wyoming have the best tax systems for small businesses, while Washington, D.C., New Jersey and Minnesota have the worst, according to a study by the Small Business & Entrepreneurship Council.
Across the board, small-business owners cited capital gains taxes as having the biggest impact on investments and entrepreneurship, the Washington-based advocacy group reported in its annual tax index, which compares state tax systems and their affects on smaller businesses.
States with the highest rates of capital gains taxes were California, Oregon and New Jersey, while Alaska, Florida and Nevada had the lowest, the study found.
"Entrepreneurs and small businesses have to struggle every day with the costs of taxation, which affect a wide array of decisions, including hiring, investment, expansion and location," Karen Kerrigan, the group's president, said in a statement.
State and local taxes can add significantly to burdensome federal taxes on small-busines owners, Kerrigan added.