Kentucky Among States With Lowest Costs to Start a Business

Zibtek, a software consulting firm, ranked states based on factors such as taxes, utility costs, registration fees, local economy, cybercrime and personal expenses. When the results were compiled, Kentucky ranked 45th overall, making it the sixth cheapest state in the study.

The state received the highest ranking for its corporate tax rate. Kentucky’s 5% tax ranked 33rd in the country. California, the state ranked most expensive for startups, had the highest corporate tax rate at 8.84%.

Kentucky ranked 37th for its personal income tax. Neighboring states Ohio (38th), Indiana (40th) and Tennessee (48th) all have lower rates than the Bluegrass State. But Kentucky lawmakers are likely to pass another income tax cut when the General Assembly convenes in January for the 2025 session. If it does, individuals will pay 3.5% in taxes in 2026, up from 4% in 2017. It was a whopping 6%.

“States with low or no income taxes can attract both business owners and workers by increasing disposable income, potentially boosting consumer spending,” the company said in a statement to The Center Square. “Favorable corporate tax rates allow companies to reinvest more of their profits in growth or distribute them to shareholders, while reduced property taxes and lower monthly electricity bills improve cash flow and margins, especially for energy-intensive industries.”

Kentucky outpaced its neighbors in average monthly electricity bill and sales tax, ranking 38th in both. Tennessee had the second-highest sales tax cost, while Ohio was 21st and Indiana 25th. Meanwhile, Indiana was 23rd in utility costs, Tennessee 30th and Ohio one spot lower.

In other metrics, Kentucky ranked third in the nation for lowest cyber crime losses, 43rd in the nation for personal spending per capita and 42nd in gross domestic product per capita.

While starting a business in Kentucky may be cheaper than most other places, Zibtek says that doesn’t always mean it’s better.

“States with low start-up costs may also have lower GDP per capita and PCE, indicating a weaker economy and reduced consumer spending, which could limit growth opportunities,” the firm said. “Networking and recruiting talent may also be more difficult due to fewer companies and fewer skilled workers.”

According to the study, California, New Jersey, Massachusetts, New York and Illinois are the five most expensive states for startups. Wyoming was the cheapest state, followed by South Dakota, Nevada, Ohio and Texas.

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According to the U.S. Census Bureau, Kentuckians started 54,649 businesses in 2023. That’s 17.2% more than in 2022.

However, Wyoming — a state with a smaller population than Louisville — had 58,486 new businesses started last year, up more than 39% from the previous year.