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Understanding Your State's Business Environment

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Understanding Your State's Business Environment

By JamieD
Published: May 4, 2010 Updated: January 9, 2013

Over the last several weeks w;ve published a series of articles on State Issues that Affect the Survival of your Small Business. The first three articles focused on state tax laws and how each stat-s requirements impact its businesses: Part One, Part Two, Part Three. In addition to tax laws, a stat-s business environment' including utility costs and labor laws - affects the success and longevity of the small businesses that operate there. By no means is this list exhaustive, as there are many factors that contribute to a business environment, but here are a few factors to consider as you decide where to start, expand, or relocate your business.


Electricity Costs

Even the most environmentally friendly business requires some form of electricity. For businesses that have't caught on to the , electricity costs can account for some of your highest bills. State taxes and environmental regulations affect the costs of electricity in your state.

The U.S. Energy Information Administration created a ranking list of states based on their costs of energy. Their rankings were based on each stat's annual revenue per kilowatt-hour for electricity utilities. The five states with the lowest electricity costs are Wyoming, Idaho, Kentucky, West Virginia, and North Dakota. The five states with the highest electricity costs are California, Maryland, the District of Columbia, Rhode Island, and New Jersey. For more information, check out the Energy Administratio's Electricity Portal and resource bank of State Data Tables.


Minimum Wage

Although higher minimum wage rates are an incentive for potential employees, higher wages affect an employe's bottom line. This is especially true for businesses that are labor-intensive.


Federal law currently sets the national minimum wage at $7.25 per hour, but many states set their own standard. In these cases, employers are required to pay their employees whichever rate is higher.

  • 15 states and territories currently set their minimum wage at a higher rate than the federal requirement: Alaska, California, Connecticut, the District of Columbia, Illinois, Massachusetts, Maine, Michigan, Nevada, New Mexico, Ohio, Oregon, Rhode Island, Vermont and Washington, with the highest rate of $8.55.
  • Five states currently set their minimum wage requirement at less than the federal requirement: Arkansas, Colorado, Georgia, Minnesota, and Wyoming, whose rate of $5.15 matches Georgia as the lowest rates in the country.
  • All other states either do not have a minimum wage requirement, or use rates equal to the federal requirement

Many states have stipulations and exemptions that affect the minimum wage required in their state, for more information check out the Department of Labo's Wage and Hour Division's FAQ page and guide to Minimum Wage Laws in the States.


Even the smallest business that employ workers should be aware of federal and state labor laws, including unionization. Currently, there are 22 right-to-work states in the US that require unionized workplaces to become 'open-shops,' by securing the right of employees to choose whether or not to join or financially support a union. Learn more about right-to-work states on Business.gov.


Workers' Compensation Costs

In addition to federal requirements, state governments require workers' compensation programs that provide employee benefits such as wage replacement, medical treatment, and vocational rehabilitation for employees (and their dependents) who are injured at work or acquire an occupational disease. High workers' compensation rates affect businesses in a similar fashion to high state unemployment tax rates - high rates can ultimately cut into a business's net profits.


Workers' compensation requirements and rates vary by state. Each state has a division dedicated to assisting business owners in understanding and complying with these regulations. Visit your state's Workers' Compensation Office for more information on your requirements.


If you choose to incorporate your business, you can incorporate in any one of the 50 states and the District of Columbia - regardless of where your business currently operates. This means that you can determine which state is the friendliest to your business needs and file there. In making the decision of where to incorporate, three factors typically are weighed: the location of the physical facilities (the home state), the cost of incorporating in the home state versus incorporating in another state and possibly having to register to transact business in the home state, and the advantages and disadvantages of each state's corporate or LLC laws.

Find out how to incorporate in your chosen state by following the state-by-state links in Business.gov's Business Incorporate Guide.


Crime Rates

Even if you feel safe in your place of business, your customers and employees may not feel the same way. Retaining good help or stable foot-traffic is a challenge for every business - but it can be insurmountable for businesses located in high-crime areas.

Crime rates often vary widely within each state, and even within certain areas of the same town. For more detailed crime statistics, visit the FBI's Uniform Crime Reporting Program's portal and review your state's Uniform Crime Reporting Program.


Consider each of these issues when starting, relocating, or expanding a business. For more information and tips on where to locate your business, see these related resources from Business.gov.


Has your business been personally affected from any of these issues? Is there any state issue that affected your business decision but it not listed that affected? Share your feedback and experiences here!

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Great info

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