The nation's capital is the most hostile place in the U.S. for small businesses, says a new report.

The District of Columbia ranks dead last – 51st – in the latest report from the Small Business and Entrepreneurship Council, called "Small Business Survival Index: Ranking the Policy Environment for Entrepreneurship Across the Nation." The rankings, done by the advocacy group yearly since 1996, are based on 38 major government-imposed or government related costs affecting investment, entrepreneurship, and business. These include taxes, regulatory costs and energy costs.

"The Small Business Survival Index 2010 shows which states are most in need of improving their competitiveness and what particular policy areas need changes so entrepreneurs and investors can get the economy and job creation back on track," said Raymond J. Keating, author of the study.

"Establishing a pro-entrepreneur, pro-investment policy climate is critical to a healthy economy and to sound government budgeting,' Keating said.

Who else ranked in the basement? The bottom five were: Vermont, California, New York, New Jersey and the District of Columbia. (Setting up a D.C. office? Then check out this guide.)

States most favorable to small business were South Dakota (a perennial chart-topper), Nevada, Texas, Wyoming, and Washington state.

"It must be noted that countless issues play into human decision-making. But the impact of public policy often is very important," Keating said. "The relative governmental costs among the states will impact where people live and work, that is, where they seek opportunity."