While Silicon Valley and Silicon Alley continue to vie for the honor of fostering the country's best tech start-ups, one hard truth might get in the way. California and New York are among the states with the worst tax climates for businesses. 

According to a recent report released by the Tax Foundation, California ranks 48, while New York is dead last. Scott Drenkard and Joseph Henchman, authors of the 2013 State Business Tax Climate Index, point out that although New York does offer moderate corporate taxes, the state has the highest individual income tax and one of the highest unemployment insurance taxes.

“The modern market is characterized by mobile capital and labor, with all types of business, small and large, tending to locate where they have the greatest competitive advantage,” the report says. “The evidence shows that states with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth.”

Evidence of this is movement is already happening. In fact, a recent study done by Pepperdine University's Robert Anderson illustrates that the number of start-ups emerging in Texas has been growing steadily in recent years. And perhaps rightfully so: Texas ranks ninth on the Index.

At the Capital Global Summit last week, according to The Wall Street Journal, Intel CEO Paul Otellini expressed his pessimism about California's economy.

"We're so close to screwing it up, it's pathetic..." Ortellini said. "I worry that we have to hit the abyss before we can fix things, and I worry that the abyss will be more like Greece." 

In 2005, Intel decided to build a multi-million dollar chip-making facility in Arizona instead of California because of the latter’s poor income tax system, the report says.

More recently, California cities like San Francisco have been baiting start-ups like Twitter to stay in the Golden State by providing attractive tax breaks.

Want to set up shop in the state ranked most business friendly? Pack your bags and head to Wyoming.