Ranking the 10 Best States to Start an Ecommerce Business
Are you thinking about launching an ecommerce business? Now might be the perfect time to do so.
According to the U.S. Census Bureau, the third quarter of 2021 saw an estimated $204.6 billion in ecommerce retail sales in the U.S., which was a 6.6% increase from the third quarter of 2020. There are no signs of this increase slowing down, either. In 2022, ecommerce sales are expected to topple $1 trillion for the first time — which is two years earlier than initially anticipated.
But what does it take to start an ecommerce business and capture a piece of the online shopping pie? Is it as simple as setting up a website and listing your goods or services for sale?
Well, not exactly.
There are several aspects to launching a successful ecommerce business. This includes choosing an ecommerce platform, establishing a rigorous digital marketing strategy, offering a unique product or service, and memorable brand experience.
But there’s one element that might fall slightly under the radar: where you launch your ecommerce business from.
Much like a brick-and-mortar storefront is influenced by the city and state it’s located in, an ecommerce business’ physical location matters. From a state’s tax climate to infrastructure concerns, several location-related factors play a role in getting your ecommerce business up and running.
Determining those factors as a new digital entrepreneur can be challenging. That’s why we’re here to make things easier for you. In this guide, we’ve definitively ranked all 50 states in the U.S. based on how conducive each one is for launching an ecommerce business.
Starting an Ecommerce Business: Top 10 U.S. States
The state you launch your ecommerce business in could play a more significant role in operations than you might think. Several states across the country offer more advantages for new digital entrepreneurs, which may influence the success of your business.
According to the final score tallies in our ranking system, here are the top 10 U.S. states to start an ecommerce business:
1. Florida
Overall Score: 8.88
Tax Climate Score: 10
Economic Outlook Score: 7.05
Infrastructure Score: 8.96
Financial Resources Score: 9.21
Florida ranked number one overall in our study. The state’s tax climate scored a perfect 10, landing in the number one spot for individual income tax rates and the number two spot for unemployment insurance tax rates. It also ranked number seven for corporate tax rates and just outside the top 20 states regarding its sales tax rank.
Florida’s economic outlook and financial resource scores also ranked highly. The state scored the third-lowest on the Small Business Policy Index (SBPI)—the lower the index number, the lighter the governmental burdens, and the better the environment for entrepreneurship—out of all 50 states in 2019, just behind Texas and Nevada.
The Sunshine State also ranked in the top 15 states for SBA loan availability and venture capital financing. As far as Florida’s infrastructure score goes, it ranked in the top six for both power grid reliability and bridge quality, and in the top 20 for internet access and road quality.
2. Utah
Overall Score: 7.89
Tax Climate Score: 7.71
Economic Outlook Score: 9.14
Infrastructure Score: 8.05
Financial Resources Score: 5.92
Utah ranked number two overall in our study. The state imposed a flat individual and corporate income tax rate of 4.95% for the 2020-2021 tax years. What’s more, the economic outlook in Utah remained strong. The state ranked number one for its job growth rate and seven for its SBPI rank
When it came to its infrastructure rank, Utah landed in number three for internet access and spot number 4 for bridge quality. Its power grid reliability rank and road quality rank landed within the top 30 states.
3. North Carolina
Overall Score: 7.71
Tax Climate Score: 8.50
Economic Outlook Score: 8.67
Infrastructure Score: 5.61
Financial Resources Score: 7.76
Ranking number three overall in our study, North Carolina was a statewide leader in pro-growth tax reform. In the 2020-2021 tax years, the state passed Senate Bill 105, which will reduce the state’s flat individual income tax rate from 5.25% to 3.99% by 2026. It will also eliminate corporate income taxes by 2028.
The economic outlook score in North Carolina ranked highly as well, with its job growth rate, five-year new business survival rate, and SBPI rank all falling within the top 20 states. The state’s venture capital financing rate was high, landing in spot number 6.
North Carolina’s lowest score fell in the infrastructure category, with power grid reliability and bridge quality ranking in the mid- to high-30s.
4. Texas
Overall Score: 7.23
Tax Climate Score: 4.79
Economic Outlook Score: 10
Infrastructure Score: 7.50
Financial Resources Score: 7.89
The Lonestar State ranked number four overall in our study, with its economic outlook score landing a perfect 10. Out of all 50 states, Texas ranked number one on the SBPI, number four for its job growth rate, and number 16 for its five-year new business survival rate. The state’s financial resources category fared highly, ranking in the top 20 states for both venture capital financing and SBA loan availability.
Where Texas fell short was its tax climate score. While the state doesn’t charge an individual income tax, it had 6.25% sales and use tax rate for tax years 2020-2021. Local tax governments also could charge up to an additional 2% tax for a max combined rate of 8.25%. In addition, the state set a franchise income tax rate that ranged from 0.331% to 0.75% on gross revenue for legal entities such as:
- Corporations
- Limited liability companies (LLCs)
- Banks
- S corporations
- Professional corporations
- Partnerships
5. South Dakota
Overall Score: 7.17
Tax Climate Score: 6.93
Economic Outlook Score: 9.81
Infrastructure Score: 4.27
Financial Resources Score: 8.16
Ranking number five overall, South Dakota’s strong suit was its economic outlook score, second only to Texas in this category. The state ranked number four on the SBPI and number eight for its five-year new business survival rate. Financial resource availability fared highly, as the state ranked number 2 for SBA loan availability.
South Dakota hit some snags regarding its infrastructure and tax climate scores. It ranked third to last (47) in bridge quality and fared poorly in its internet access rank (39). Out of all four categories analyzed to derive its final tax climate score, individual income and corporate tax rates ranked number one. However, the state’s sales tax and unemployment insurance tax ranks fell short, landing in spots 34 and 38, respectively.
6. Nevada
Overall Score: 7.04
Tax Climate Score: 3.71
Economic Outlook Score: 8.00
Infrastructure Score: 10
Financial Resources Score: 8.29
Ranking sixth overall, Nevada was scored a perfect 10 for infrastructure. The state took the number one spot for internet access and bridge quality. Power grid reliability landed them in spot number eight, and the state’s road quality rank landed them within the top 20 states.
The economic outlook score in Nevada was also strong, as the state took the number three spot for job growth and number two for their SBPI rank.
Nevada’s current tax climate was where its ranking faltered. The state didn’t impose a corporate or individual income tax. Still, it set a gross receipts tax on businesses—which applies to business-to-business transactions and final consumer purchases, leading to tax pyramiding. Nevada also ranked 44th for its sales tax rate, with its combined state and average local sales tax rate reaching a maximum of 8.23% in 2021.
7. Montana
Overall Score: 6.96
Tax Climate Score: 7.36
Economic Outlook Score: 7.71
Infrastructure Score: 4.94
Financial Resources Score: 8.16
Big Sky Country landed in spot number seven overall in our study. Montana also ranked highly in its cumulative economic outlook score, taking spot number four for its five-year new business survival rate, and number nine for its job growth rate.
Montana’s weakest score fell in the infrastructure category, ranking 44th in the country for internet access, 28th for power grid reliability, and 27th for bridge quality. The state’s highest score in the infrastructure category was based on its road quality at number 12.
Coming in at number seven overall for its tax climate score, Montana’s highest score in this category was its sales tax rank, landing in third.
8. Colorado
Overall Score: 6.74
Tax Climate Score: 5.14
Economic Outlook Score: 6.57
Infrastructure Score: 7.20
Financial Resources Score: 10
Colorado took the number eight spot overall in our study, clocking in a perfect 10 on its financial resources score. The state ranked number four for venture capital financing and landed within the top 20 states for SBA loan availability.
Colorado’s tax climate didn’t rank quite as highly, however. While the state’s corporate tax rate ranked sixth and individual income tax rate ranked 14th, their sales tax rank (38) and unemployment insurance tax rank (41) lowered their total average. Colorado’s economic outlook fared highly, though, taking spot number 3 for job growth rate and 12 for their SBPI rank.
9. Indiana
Overall Score: 6.72
Tax Climate Score: 7.21
Economic Outlook Score: 8.19
Infrastructure Score: 4.82
Financial Resources Score: 6.32
Indiana earned spot number nine overall in our study, much of which was due to its economic outlook score. The state took spot number six for its SBPI rank and number nine for its five-year new business survival rate. Indiana’s second-highest score was its tax climate score, ranking in the top 20 states for its corporate tax (maximum of 5.50%), individual income tax (maximum of 3.23%), and sales tax (7%) rates. Infrastructure was Indiana’s weakest category, ranking 37th for its power grid reliability and 33rd for its road quality.
10. Tennessee
Overall Score: 6.60
Tax Climate Score: 5.21
Economic Outlook Score: 7.71
Infrastructure Score: 7.44
Financial Resources Score: 6.58
The Volunteer State took home number 10 in our study, scoring highly in economic outlook and infrastructure categories. When it came to the state’s economy, Tennessee landed in spot number eight for its job growth rate and spot number 11 for its SBPI rank.
In terms of its infrastructure, the state had one of the highest road quality ranks, which earned it spot number two in this subcategory. Following suit with road quality, Tennessee also ranked in the top 20 states for its bridge quality and internet access.
The state’s tax climate score was its weakest, ranking 46 for its sales tax rate (7%) and 26 for its corporate tax rate (maximum of 6.50%). However, individual income tax rates were low, with a top rate of 1%.
Complete Rankings by State
Complete Rankings by State
In the table below, all 50 states are ranked based on the cumulative scores of our four key categories.
COMPLETE
Rankings by State
Rank
Florida
1Utah
2North Carolina
3Texas
4South Dakota
5Nevada
6Montana
7Colorado
8Indiana
9Tennessee
10Arizona
11Nebraska
12Michigan
13Wyoming
14Georgia
15Alabama
16Missouri
17Washington
18Idaho
19Massachusetts
20Wisconsin
21Mississippi
22Delaware
23North Dakota
24South Carolina
25Kansas
26New Hampshire
27Kentucky
28Oregon
29Minnesota
30Ohio
31Alaska
32Pennsylvania
33Illinois
34Vermont
35Virginia
36Iowa
37Maryland
38Oklahoma
39Maine
40California
41New Mexico
42Louisiana
43Connecticut
44New York
45Hawaii
46New Jersey
47Rhode Island
48Arkansas
49West Virginia
50Overall Score
Florida
8.88Utah
7.89North Carolina
7.71Texas
7.23South Dakota
7.17Nevada
7.04Montana
6.96Colorado
6.74Indiana
6.72Tennessee
6.6Arizona
6.53Nebraska
6.49Michigan
6.35Wyoming
6.34Georgia
6.33Alabama
6.1Missouri
5.94Washington
5.77Idaho
5.74Massachusetts
5.5Wisconsin
5.49Mississippi
5.33Delaware
5.22North Dakota
5.21South Carolina
5.16Kansas
5.12New Hampshire
5.05Kentucky
5.05Oregon
5.02Minnesota
5.02Ohio
4.9Alaska
4.69Pennsylvania
4.55Illinois
4.5Vermont
4.49Virginia
4.45Iowa
4.41Maryland
4.34Oklahoma
4.26Maine
4.12California
3.78New Mexico
3.38Louisiana
3.28Connecticut
3.27New York
2.79Hawaii
2.74New Jersey
2.72Rhode Island
2.71Arkansas
2.67West Virginia
2.64Tax Climate
Florida
10Utah
7.71North Carolina
8.5Texas
4.79South Dakota
6.93Nevada
3.71Montana
7.36Colorado
5.14Indiana
7.21Tennessee
5.21Arizona
5.64Nebraska
5.93Michigan
8.71Wyoming
9.43Georgia
4.14Alabama
4.21Missouri
8.43Washington
3.71Idaho
4.71Massachusetts
4.43Wisconsin
4.86Mississippi
6.79Delaware
5.14North Dakota
6.93South Carolina
5.36Kansas
6.07New Hampshire
5.43Kentucky
5.5Oregon
2.64Minnesota
1.71Ohio
3.21Alaska
6.71Pennsylvania
5Illinois
2.64Vermont
4.07Virginia
5Iowa
3.29Maryland
1.5Oklahoma
6.64Maine
5California
0.43New Mexico
5.29Louisiana
3.57Connecticut
3.71New York
1.36Hawaii
3.5New Jersey
0Rhode Island
2.14Arkansas
1.71West Virginia
5.79Economic Outlook
Florida
7.05Utah
9.14North Carolina
8.67Texas
10South Dakota
9.81Nevada
8Montana
7.71Colorado
6.57Indiana
8.19Tennessee
7.71Arizona
8Nebraska
3.9Michigan
5.52Wyoming
2.38Georgia
5.33Alabama
8Missouri
3.43Washington
5.62Idaho
7.62Massachusetts
6.86Wisconsin
5.62Mississippi
7.14Delaware
1.71North Dakota
2.29South Carolina
5.62Kansas
2.86New Hampshire
4.19Kentucky
4.1Oregon
2.95Minnesota
4Ohio
6.67Alaska
1.24Pennsylvania
3.71Illinois
3.14Vermont
1.71Virginia
2.67Iowa
4.1Maryland
4.86Oklahoma
2.19Maine
6California
2.95New Mexico
2.67Louisiana
2.95Connecticut
0.19New York
0.48Hawaii
0New Jersey
2.76Rhode Island
2.76Arkansas
2.19West Virginia
2.48Financial Resource
Florida
9.21Utah
5.92North Carolina
7.76Texas
7.89South Dakota
8.16Nevada
8.29Montana
8.16Colorado
10Indiana
6.32Tennessee
6.58Arizona
4.34Nebraska
9.61Michigan
7.24Wyoming
3.16Georgia
9.08Alabama
6.84Missouri
6.18Washington
8.95Idaho
5Massachusetts
7.5Wisconsin
5.92Mississippi
5.13Delaware
7.37North Dakota
0.92South Carolina
4.47Kansas
2.11New Hampshire
5.79Kentucky
3.95Oregon
8.95Minnesota
8.95Ohio
5.13Alaska
6.45Pennsylvania
9.21Illinois
8.55Vermont
9.21Virginia
5.13Iowa
6.18Maryland
7.89Oklahoma
1.32Maine
3.55California
9.61New Mexico
1.32Louisiana
6.58Connecticut
7.63New York
6.58Hawaii
0.66New Jersey
5.53Rhode Island
3.29Arkansas
6.05West Virginia
0Infrastructure
Florida
8.96Utah
8.05North Carolina
5.61Texas
7.5South Dakota
4.27Nevada
10Montana
4.94Colorado
7.2Indiana
4.82Tennessee
7.44Arizona
7.62Nebraska
7.99Michigan
3.35Wyoming
7.87Georgia
8.72Alabama
6.4Missouri
4.82Washington
6.89Idaho
5.73Massachusetts
4.45Wisconsin
5.98Mississippi
1.59Delaware
7.56North Dakota
8.29South Carolina
4.82Kansas
7.87New Hampshire
4.94Kentucky
6.04Oregon
8.05Minnesota
8.29Ohio
5.37Alaska
4.27Pennsylvania
1.95Illinois
6.04Vermont
5Virginia
5.06Iowa
5.24Maryland
5.67Oklahoma
4.76Maine
1.34California
5.79New Mexico
2.68Louisiana
1.22Connecticut
3.11New York
4.82Hawaii
5.67New Jersey
4.82Rhode Island
3.11Arkansas
2.44West Virginia
0States with Best and Worst Tax Climate Scores
As we mentioned earlier, Florida scored the highest in the tax climate category. The Florida Legislature implemented reduced corporate income tax rates and increased tax refunds in 2018 and 2019 in response to the federal Tax Cuts and Jobs Act of 2017. Florida also ranked number one in individual income tax rates, as the state doesn’t impose them on its citizens.
Overall, Florida had one of the lowest tax burdens (state and local taxes paid by a state’s residents divided by that state’s share of net national product) across the country in 2019.
On the other hand, New Jersey had the lowest tax climate score out of all 50 states. With a top individual income tax rate of 10.75%, a top corporate tax rate of 10.5%, and a 6.625% state sales tax rate, The Garden State featured notably higher rates across the board. One of the most notable tax changes in the state was the passing of the New Jersey A10 in September of 2020. This bill expanded the “millionaire’s tax” rate by raising income taxes via reducing the amount in which the state’s top marginal individual income tax rate kicks in. A10 increased the gross income tax rate from 8.97% to 10.75% on income between $1,000,000 and $5,000,000.
States with Best and Worst Economic Outlook Scores
Texas had the highest economic outlook score of all 50 states, and for a good reason. The state ranked number one in the 2019 SBPI, which looked at 62 different measures related to significant government-imposed or government-related costs that directly affect entrepreneurs and small businesses across various industries. What’s more, Texas ranked number four in job growth as of November 2021.
Hawaii scored the lowest out of all 50 states regarding economic outlook. Scoring a 129.044 on the 2019 SBPI, a value where lower is better, the state provided one of the most challenging government policy environments for new entrepreneurs or small businesses. For example, within the SBPI, Hawaii ranked the lowest in tax categories such as:
- Personal Income Tax Rates
- Individual Capital Gains Tax Rates
- Individual Dividends and Interest Tax Rates
- State and Local Sales, Gross Receipts, and Excise Taxes
- Adjusted Unemployment Taxes
- State Gas Taxes
Hawaii’s job growth rate decreased from November 2020 to November 2021, leaving the state at rank 48. Roughly 2,020 jobs were lost over this 12-month span, which lowered the state’s overall number of jobs to 564,980 during this period.
States with Best and Worst Financial Resource Scores
Colorado scored a perfect 10 when it came to financial resource availability, as political organizations like the Venture Capital Authority (VCA) and active funds like The Greater Colorado Venture Fund and FirstMile Ventures continued to support access to capital for the state’s entrepreneurs and startup businesses.
West Virginia scored the lowest when it came to financial resource availability. Zero small businesses received SBIC program financing in the 2018 fiscal year10. And from 2014 to 2017, only one small business was given a loan (worth $300,000) in the state. In terms of venture capital financing, West Virginia had the least amount of new business or startup investments made in 2020 alongside Alaska and Mississippi.
States with Best and Worst Infrastructure Scores
Nevada scored a perfect 10 when it came to its infrastructure score. The state ranked number one in the country for access to broadband internet with speeds greater than 1 gigabit per second. This means digital entrepreneurs looking to launch an ecommerce business can rest assured they’ll have a quality internet connection in Nevada.
The Silver State also ranked number one in bridge quality, with roughly 52% of its bridge infrastructure in good condition. Bridge quality, much like road quality, is essential when establishing shipping standards as an ecommerce business owner. Nevada’s power grid reliability also ranked highly in spot number eight, as it featured fewer power outage disruptions than several other states.
West Virginia had the lowest infrastructure score overall, scoring especially low in power grid reliability, internet access, bridge quality, and road quality. The state’s power grid ranked last in reliability, meaning it had more power outage minutes than any other state. In terms of internet access, roughly 99% of The Mountain State—which includes urban, rural, tribal, and non-tribal areas—has zero access to providers offering gigabit internet.
When it came to bridge and road quality, West Virginia’s interstate system’s rate of bridge and road deterioration was among the highest in the country, with 3% of its interstate pavement in poor condition and 13% of its interstate bridges in poor, structurally deficient condition.
Ready to Launch Your Ecommerce Brand?
The state you launch your ecommerce business in plays an essential role in how easily you can get your venture off the ground and keep operations afloat. Before becoming a digital entrepreneur, be sure to pay attention to state-related factors such as individual income and corporate tax rates, internet access, power grid reliability, and financial resource availability in the area you plan to do business in—and keep in mind that the top 10 states we listed above are good places to start.
Once you’ve chosen a state to launch your ecommerce business from, Nexcess is here to help you get your website up and running.
With StoreBuilder by Nexcess, you can quickly and easily create an online store with WordPress—and no previous coding knowledge is required. Complete with the StoreBuilder wizard, optimized plugins, and fully managed WooCommerce hosting right out of the box, you can build a customized online store in just a few clicks.
Methodology
1. Tax Climate
- Corporate Tax Rank
- Individual Tax Rank
- Sales Tax Rank
- Unemployment Insurance Rank
2. Economic Outlook
- Job Growth
- Five-year New Business Survival Rate
- Small Business Policy Index (SBPI) Rank
3. Infrastructure
- Internet Access
- Power Grid Reliability
- Road Quality
- Bridge Quality
4. Financial Resources
- Venture Capital Rank
- SBA Loan Availability
Scores for each category were determined by analyzing data from several sources listed at the end. We calculated all rankings within a given category, found the average across those factors, and normalized them on a scale from 0-10 (with 0 being the worst and 10 being the best). Once scores were determined across all categories, we applied weighting to find the final tally. Each factor was weighted as follows:
Tax Climate: 0.35 / Economic Outlook: 0.25 / Infrastructure: 0.25 / Financial Resources: 0.15
Sources
- The Tax Foundation (2022). “2022 State Business Tax Climate Index.”
- Seidman Research Institute, ASU W.P. Carey School of Business (2021). “Job Growth by State.”
- U.S. Bureau of Labor Statistics (2021). “Business Employment Dynamics: Establishment Age and Survival Data.”
- Small Business Policy Index (2019). “Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Small Business and Entrepreneurship.”
- Federal Communications Commission (2020). “Area Comparison: Compare Broadband Availability in Different Areas.”
- U.S. Energy Information Administration (2021). “Annual Electric Power Industry Report, Form EIA-861 detailed data files.”
- TRIP: A National Transportation Research Nonprofit (2022). “Research, Resources & News: Roads.”
- U.S. Department of Transportation: Federal Highway Administration (2021). “Bridge Condition by Highway System 2021.”
- U.S. News (2019). “Business Environment Rankings.”
- Small Business Administration (2018). “SBIC Program Financing to Business by State, Fiscal Year 2014 through Fiscal Year 2018.”