What makes a state a great place to do business? Let us count the ways.
There are more than a dozen factors that enterprises find are important to their success — and, in particular, vital considerations as they decide where to locate, relocate or expand. These factors influence various aspects of the cost of doing business, the ease and speed of proceeding with a new project, the ability to hire and train the right people, and the overall hassle factor. Every year, Area Development consults with a panel of experts whose careers are involved in location selection and economic development, asking them which states excel at these all-important characteristics.
The result is our annual Top States for Doing Business feature. If you’re a regular reader, you’ll see a lot of familiar names here, which is not entirely surprising because it takes a lot of time and effort for a state to hardwire these valuable traits and build solid reputations.
We generated an overall list of Top States by analyzing and compiling the highest performers in more than a dozen different categories, about which there will be a lot more detail below. Check the first 10 overall honorees and you will see the same 10 states that were there last year. The order is a bit rearranged, but one important thing is unchanged: Georgia tops the list. Again. For the 10th year in a row, in fact.
That can be explained by the fact that as you look through the individual lists of what makes a state a great place to do business, you will find Georgia uniformly at or near the top of most of them. The state has carefully assembled most of the building blocks that location decision-makers are looking for, and that work translates into success on this ranking.
Another thing that hasn’t changed is the fact that the South is well-represented here. Jurisdictions in the Southeast, in particular, have built attractive incentives, workforce programs, and a generally business-friendly attitude, and their labor markets tend to be favorable in terms of cost, availability, and right-to-work status.
There are standouts elsewhere, too, including traditionally industrial states such as Ohio, Indiana, Michigan, and Illinois. You’ll find the sun shining on such places as Arizona, Kansas, Arkansas, and Iowa, and it’s no surprise that New York is a leading destination, too. Read on for more details on the factors that went into these overall rankings, and which states excel in these areas. Note that we have a separate sidebar that takes a deeper dive into the highly important category of workforce training.
It’s always worth pointing out that which state is best for your project depends entirely on the details, your requirements, and other unique circumstances. Just because a state isn’t near the top of some of these lists, or any of them, doesn’t mean it’s not the perfect place for your company’s expansion. Every state is eager for your jobs, and any state could be the perfect match for reasons that pertain to your most important needs.
TOP STATES FOR DOING BUSINESS 2023
2. South Carolina
4. North Carolina
16. New York
Plenty of things go into the cost of doing business, some of which have to do with geography and resources, some of which relate to matters that are more under the direct control of state officials.
Overall Cost of Doing Business
Plenty of things go into the cost of doing business, some of which have to do with geography and resources, some of which relate to matters that are more under the direct control of state officials. Georgia tops this list in part because it’s well-located in the booming Southeast, and well-connected from a logistical perspective. But it certainly doesn’t hurt to have a low corporate tax rate that hasn’t risen in many decades, and even dropped a quarter point a few years back.
Likewise, neighboring Alabama aims to keep the cost of business low with such pluses as competitive tax rates, abatements for various reasons, and Opportunity Zones that offer incentives for targeting geographic areas of need. Alabama’s neighbor to its north, Tennessee has the second-lowest state and local tax burden per capita, as well as no income tax on wages. And a step to the west, in Mississippi, the cost of doing business is kept favorable with a low corporate tax rate, various incentives, and, in general, business and living costs that are well below the national average. Indeed, when it comes to overall favorable business costs, most of the leading states are in the Southeast, along with Indiana, Ohio, and Texas.
Incentive programs are among the business cost factors that economic development leaders can really influence, whether we’re talking tax breaks, grants, low-interest loans, or other kinds of assistance.
Business Incentive Programs
Incentive programs are among the business cost factors that economic development leaders can really influence, whether we’re talking tax breaks, grants, low-interest loans, or other kinds of assistance. Perennial leaders in this regard include Georgia and South Carolina, once again the #1 and #2 on this list. To take South Carolina as an example, state and local sales tax exemptions lower manufacturing costs. Service-oriented businesses such as data centers, along with enterprises in other sectors, can earn their own exemptions by investing and creating jobs.
Once again, this category is largely dominated by Southern States, but two further north not only make a repeat appearance but move higher on the list. Ohio moves up a spot to third, and Indiana slides up two places to fourth on the business incentive program list. And Arkansas jumps onto this list with a wide range of generous incentives, including its Tax Back sales and use tax refund for such things as machinery and building materials, job creation incentives, equity investment credits for encouraging creation of higher-paying jobs, R&D incentives, and even credits for bringing Hollywood to Arkansas.
Access to Capital and Funding
Money may make the world go around, but there are parts of the world where there are especially large sums being made available for business capital and funding. This is a category where areas of the country away from the South have a chance to excel. The innovation hotbed of California is not coincidentally the leader in access to capital and funding, according to our experts. One look at the Statista rankings of venture capital by state last year shows just how much California leads the pack, at $104 billion, far ahead of the $29 billion raised in New York, second-place on Statista’s list (and also ours).
Texas lands third on our list of access to capital and funding. It’s fifth on Statista’s overall VC list, but of course, VC isn’t the only kind of funding out there. Texas boasts the nation’s largest deal-closing fund, the Texas Enterprise Fund, which is a performance-based incentive designed to move the state over the goal line in competitive economic development situations.
Competitive Labor Market
As with a number of these categories, there are multiple factors that make for a competitive labor market. One of the most important is simply the availability of labor, which these days is anything but a given — to do well here, a state either needs a solid supply of existing labor or it needs to be good at attracting more. The leading 10 states can all check one or both of those boxes, and Georgia is once again at the top of this list.
A competitive labor market also, of course, suggests labor at a competitive rate of pay, and once again, the top 10 states do well in that regard. All but one are among the bottom half of states when it comes to median wages. All but one also are right-to-work states. And if you cross-reference this list with our separate section on workforce training, you’ll see a lot of overlap, too, since exceptional training resources help boost the availability of qualified and competitive labor.
Energy Availability and Costs
Pretty much annually, you’ll find Georgia and Tennessee at the top of the list for energy availability and cost. They are perpetually attractive for industries requiring lots of energy, and reliable energy.
It’s worth pointing out that the cost factor is not just a matter of basic energy rates. For example, Georgia Power helps boost business bottom lines through energy efficiency programs and rebates, management tools that can lead to savings, and business advisory services that help users deal with energy-related challenges and increase efficiencies.
Tennessee’s perpetual spot at or near the top has to do in part with the rates charged by local power providers served by the Tennessee Valley Authority, a federally created public power wholesaler that sets rates below roughly 70 percent of the country. In the #3 spot, South Carolina’s energy-related business advantages include the series of rebate and incentive programs provided by Santee Cooper, the state’s largest power provider and one of the nation’s biggest public power utilities.
Certainly, many industrial users have long had significant water needs, but climate change is impacting availability as certain regions cycle in and out of drought conditions.
A new category on our list is water availability, and it’s a sign of the times. Certainly, many industrial users have long had significant water needs, but climate change is impacting availability as certain regions cycle in and out of drought conditions.
Ohio lands atop this list, and its positive water picture can be pegged in part to the fact that its entire southern boundary and much of its northern edge are bordered by fresh water, lots of it. But the state is also aiming to be forward-thinking in terms of water infrastructure. For example, the Ohio BUILDS initiative includes millions of dollars of grant funding for water projects, including construction of new water systems, replacement of aging water lines, and installation of new water mains.
Michigan also has many miles of fresh water along its borders and within its central areas, and it also is dedicating significant resources to its water infrastructure. A multibillion-dollar infrastructure program approved last year includes substantial sums targeted at water improvement projects, along with wastewater and stormwater upgrades.
Measures of infrastructure are likely to be rather fluid in the coming years, as the nation’s infrastructure is getting more attention and investment these days than it has in years past.
Logistics and Infrastructure
Measures of infrastructure are likely to be rather fluid in the coming years, as the nation’s infrastructure is getting more attention and investment these days than it has in years past. Improvement projects, funded locally and by new federal dollars, are literally all over the map.
In the meantime, though, Georgia remains at the top of this category, as it has been in the past. From a logistics perspective, it sits in a perfect geographic location for serving the population centers of the Southeast. It has excellent deepwater port access, including the nation’s fastest-growing container port in Savannah, and air connections through the Atlanta International Airport that is literally the world’s busiest and also most efficient. In the #2 spot, Texas claims more miles of public roads and freight rail than any other state, plus 11 deepwater ports and a half dozen of the nation’s busiest airports.
Advantageous locations and solid infrastructure also are helpful for neighbors Indiana, Ohio, and Kentucky. Indiana has an ever-growing logistics sector along its “Crossroads of America” highway system, while Ohio is strong in multiple modes of transportation. Kentucky lies within a day’s drive of two-thirds of the American population, has been a strong state investor in road infrastructure, and hosts the biggest hub and primary international gateway for UPS.
Available Real Estate
The real estate markets, which have been messy and unpredictable in recent years, may be cooling off some, but it can still be a challenge to locate an available property or facility at just the right time, in just the right place. Our rankings for the top states for available real estate have shifted somewhat, and South Carolina now tops the list. Georgia, which had led in this category, drops to fourth. Texas holds onto the second-place spot, and Ohio leaps up to third.
Needless to say, obtaining a suitable piece of real estate is essential for location or expansion, but it’s only part of the story of getting that facility up and running. Check the categories below that relate to site readiness, the regulatory environment, and the general friendliness of the state and local governments — all of these are essential elements to taking a real estate story all the way to a happy ending.
Cooperative and Responsive State and Local Government
This category is arguably a bit subjective, but it’s one of the most important factors along with the ability to find the right workers and put together an affordable deal. This category reveals a list that doesn’t change much, which isn’t surprising, because the nature of state and local government is grounded in culture, attitude, reputation, and history.
So, here’s another one that Georgia leads. Why? Everything from a solid fiscal picture to generous incentives to invaluable assistance in finding, attracting, and — if need be — training the right people. The top five are rounded out by Tennessee, both Carolinas, and Ohio, and that’s the same as last year, too. All boast of their fiscal responsibility, lack of regulatory hassle, willingness to lift the bottom line, plus workforce investments.
Corporate Tax Structure
For all of the effort that goes into touting what states have, this is a category where states like to brag about what they don’t have. Topping the list is Florida, which likes to talk about its zero-percent personal income tax, lack of a corporate income tax on certain kinds of corporations, and lack of a state property tax. That last “no” means that even when local property taxes are added in, property taxes still average below national norms. The Tax Foundation puts Florida in the top five best states.
North Carolina is second on the list this year, perhaps in part because it’s well on the way toward phasing out its corporate income tax. It’s been heading downward for a number of years and the schedule has it eventually reaching zero. Third-place Texas, meanwhile, does not have a corporate income tax or a personal income tax.
South Carolina’s efforts to streamline the location and expansion process have landed it atop the list of site-readiness programs this year. The state’s department of commerce operates a LocateSC.com service designed to simplify the search for sites that are good candidates, and the Palmetto Sites program vets sites to verify critical information and assure they are “checked for readiness.”
Second on the list is Georgia, with its Georgia Ready for Accelerated Development program, or GRAD for short. These are fast-track sites that have graduated, so to speak, through the due diligence process, been reviewed by a third party, and gained approval of a board of advisors. Ohio invests significant sums of money to create shovel-ready sites, vetted and hassle-free. And one click leads to a map of Tennessee Certified Sites in all corners of the state, prime locations declared ready to roll.
Favorable Regulatory Environment
The shovel-ready sites mentioned above have often jumped through the regulatory hoops already. Otherwise, it’s important to consider how easy or hard it will be to get permission from a specific jurisdiction to do what you want to do with your site. This year, Alabama moves to the head of the class for favorable regulatory environment, perhaps reflecting some of the state’s recent legislative work to elevate business-friendliness.
South Carolina remains near the top of this list, thanks to its careful balance of business friendliness with an eye toward sustainability. Georgia is near the top again, with the top five rounded out by Tennessee and North Carolina. As usual, the South is home to the most favorable regulatory environments, according to our experts, but also as usual, Indiana makes the list. This year Ohio does, too.
Speed of Project Permitting
This, too, is an important consideration if you’re not picking a site that is already label “shovel-ready” and pre-cleared through permitting processes. It’s important because without preclearance, your project could potentially be in for a long wait, depending on where it’s located.
That reality has partly to do with the political culture. Some states have a stricter or more detailed permitting process than others. Politics watchers will thus be unsurprised that the states known for speedy permitting are largely in the South, where a laissez-faire attitude is more likely to be in place. The other factor that can help or hinder speed of permitting is staffing, or lack thereof. A lot of jurisdictions never really recovered from pandemic staffing shortages and backlogs.
All that said, your project is likely to get a speedy and fair shake in such places as South Carolina, Alabama, Georgia, Mississippi, and Tennessee, among other southern locales. Your business can also hope for speedy resolution if your site is located in such places as Indiana, Ohio or Iowa, according to site selection experts who responded to our 14th annual survey.