America’s New Business Hot Spot

Todays top stocks to buyThe nation’s top state to do business may not be a haven for Big Business yet – but conditions there are making it very hard to resist…

At 77,000 square miles, it’s not exactly a small state, geography-wise.

However, if you were to ask most people about South Dakota’s claim to fame, Mount Rushmore may probably be the only thing that comes to mind.

And if you were to tell these same people that the state we know so little about is actually America’s number one place to do business in – you’ll probably see a few head scratches.

CNBC recently published its annual America’s Top States for Business list in 2013…and South Dakota took the top spot.

The survey rated all 50 states against 51 metrics in 10 categories.

Some of the categories include: cost of doing business, economy, technology and innovation, and business friendliness.

You wouldn’t think it, but South Dakota is no flash in the pan.

In fact, since CNBC began its annual list back in 2007, the Rushmore State has quietly been a top performer almost every year – reaching 7th in 2008, 2010 and 2012 while placing in the top 15 for the other years.

Let’s look at how the top 5 stacked up with one another:

5) Utah / Virgina

The Beehive State and the Old Dominion tied for fifth this year.

Utah’s workforce is young and community-oriented, and the emphasis on a healthy work-life balance makes the state very business-friendly. Not surprisingly, its largest industry is health care.

Utah’s rate of job creation is twice the national average, clocking in at 4 percent growth or more in the past year.

Businesses love Utah because their 5 percent flat corporate tax is one of the lowest in the country.

Its GDP growth is also one of the country’s highest. Last year, GDP rose 3.4 percent compared to the paltry 2.5% US average.

One of its weak spots however, is education, as Utah’s post secondary institutions aren’t known for cranking out strong pedigree.

Virginia meanwhile, slipped slightly from previous years, but mainly due to other states showing vast improvement.

Claiming the number one position in 2007, 2009 and 2011, Virginia’s shown that it has struck a strong balance between low taxes, a strong labor force, and effective economic development programs.

Besides being strategically located in the eastern beltway, Virginia’s prominent technology environment also remains a force to be reckoned with.

Where it falls short is in the cost of doing business (#38), which isn’t surprising given that the majority of eastern states are among the costliest to do business in the country.

4) Nebraska

Another well-balanced, business-friendly state that’s often ranked high on the list, we can see why Warren Buffett calls Nebraska home.

Governor Dave Heinement recently signed the state’s largest tax relief package in Nebraska’s history and has brought tax rates down to sensible levels.

The top individual income tax rate comes in at 6.84%, the corporate tax rate is at 7.81% and the state sales tax is 5.5%.

Nebraska’s economy, led by agriculture and food processing, has kept its unemployment rate at 3.8 percent, or half of the national rate.

Improvement areas would be in Access to Capital and Technology and Innovation. As the Cornhusker state, Nebraska will need to diversify into industries beyond farming and foods if it wants to attract investment dollars.

3) North Dakota

Two words easily placed North Dakota in the top 3: shale oil.

Record oil production in the Bakken Shale propelled the state to the highest GDP growth in the country last year with a blistering 13.4 percent – more than three times the rate of the next fastest, Texas.

What’s surprising is that oil and gas isn’t even North Dakota’s largest industry – at least not yet. Agriculture is their biggest breadwinner, and it remains a strong area for growth.

It has the nation’s lowest unemployment rate at 3.2 percent and their tax revenues are forecasted to give the state a $1.6 billion surplus – not bad for a population of less than 700,000.

Like farm-heavy Nebraska, North Dakota is near the bottom for Technology and Innovation. But being flush with cash could easily enable them to invest more in this area.

2) Texas

Without a doubt, energy-rich resources help make Texas a perennial top place finisher every single year.

Actually, Texas has not finished lower than second place in each of the annual rankings.

But it’s not only the energy boom driving Texas. Major tech companies like Facebook, Apple and Microsoft have expanded their operations into Texas because of its business-friendly environment.

The Manufacturing sector is also taking advantage of the strong business climate in the Lone Star State.

One of the common threads among all of the top states is low taxes – and Texas definitely doesn’t disappoint in that area.

They have zero income, capital gains, interest, or dividend taxes on individuals.

There are also zero corporate income and capital gains taxes.

Where Texas stumbles is in Quality of Life, as poor environmental quality and lack of health insurance is taken into consideration.

The Cost of Doing Business also prevented Texas from taking the number one spot this year as its major economic regions are known for their high utility costs and rent.

Which brings us to our number one state…

1) South Dakota

So what does South Dakota have to offer?

Besides earning a record 1,639 out of a possible 2,500 points in CNBC’s annual rankings this year…plenty.

As CNBC Senior Correspondent Scott Cohn noted: “We found it [South Dakota] has one of the lowest tax burdens in the country as well as low wage and utility costs. The regulatory climate is one of the friendliest to business anywhere, and the biggest issue in South Dakota’s booming economy is that low unemployment means fewer available workers.”

Their stance on taxes is a business owner’s dream. There’s no corporate income tax, no personal income tax, no business inventory tax, no personal property tax and no inheritance tax.

Though its shale oil-gushing neighbor to the north has stolen much of the media limelight the last few years, South Dakota is truly an “all of the above” state.

In addition to low business costs, its lax legislation and tight fiscal discipline makes it the second most business-friendly state after Delaware.

A small population means low crime rates and plenty of unspoiled natural beauty, ranking South Dakota high in Quality of Life.

Where the Rushmore State drops the ball is in Technology and Innovation.

Not only is it one of the least Internet-connected states, but investment money for research and ventures seldom sees South Dakota on the priority list.

Their government is hoping that its ongoing efforts to improve their business climate will swing more investors in their favor.

Fortunately with costs always a sticky point for businesses, South Dakota is hands-down the best state to set up shop.

So what does this mean for us investors?

Taxes bear a heavy burden for most companies — even ones that use complicated international corporate structures like Starbucks.

Setting up shop in a low-tax, easy-to-do-business-in jurisdiction gives businesses a head start. Saving an extra 5-10% makes a big difference in the bottom line (especially for early-stage companies).

To put it in perspective, if Apple cut its costs by 5% the company would save a whopping $5.2 billion annually — or $5.80 a share.

That’s something we investors can’t ignore.

So when you’re looking to make your next investment, be aware of the companies tax burden and what they’re doing to minimize it.

Yours in profits,
Todays top stocks to buy
John Holt
for Top Stock Millionaire
Follow me on Google+, Facebook, and Twitter

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