(The Center Square) – Kentucky is one of the least expensive places in the United States to start a business, a recent study found. It’s a designation that has both advantages and drawbacks.
Zibtek, a software development consultancy business, scored the states on factors such as taxes, utility costs, filing fees, the local economy, online crime and personal expenses. After compiling the scores, Kentucky finished 45th overall, or the sixth least-expensive state in the study.
The highest ranking the state received was for its corporate income tax rate. Kentucky’s 5% tax came in 33rd nationally. California, the state determined to be the most expensive state for startups, had the highest corporate tax rate at 8.84%.
For personal income tax, Kentucky ranked 37th. Neighboring states Ohio (38th), Indiana (40th) and Tennessee (48th) all have lower rates than the Bluegrass State. However, Kentucky lawmakers are likely to pass another income tax cut when the General Assembly convenes in January for its 2025 session. If that takes place, individuals would pay a 3.5% tax in 2026, down from 4%. It was as high as 6% as recently as 2017.
“States with low or no income tax can attract both business owners and employees by increasing disposable income, potentially boosting consumer spending,” the company said in a statement to The Center Square. “Favorable corporate tax rates allow businesses to reinvest more earnings into growth or distribute them to shareholders, while reduced property taxes and lower monthly electric bills improve cash flow and margins, especially for energy-intensive industries.”
Kentucky outperformed its neighbors in terms of the average monthly electric bill and sales tax, coming in 38th in both. Tennessee had the second highest sales tax cost, while Ohio was 21st and Indiana was 25th. Meanwhile, Indiana was 23rd for utility costs, with Tennessee 30th and Ohio one spot lower.
For other metrics, Kentucky had the third lowest internet crime losses, was ranked 43rd nationally for personal expenses per capita and finished 42nd for gross domestic product per capita.
While it may be cheaper to start a business in Kentucky than most other places, Zibtek said that doesn’t always make it better.
“States with low startup costs might also have lower GDP per capita and personal consumption expenditures (PCE), indicating a weaker economy and reduced consumer spending, which could limit growth opportunities,” the company said. “Networking and talent recruitment might also be more challenging due to fewer businesses and a smaller skilled workforce.”
California, New Jersey, Massachusetts, New York and Illinois were the five most expensive states for startups, according to the study. Wyoming was the least expensive state, followed by South Dakota, Nevada, Ohio and Texas.
According to the U.S. Census Bureau, Kentuckians started 54,649 businesses in 2023. That was up 17.2% from 2022.
However, Wyoming – a state with a smaller population than Louisville – had 58,486 new businesses started last year. That was up more than 39% from the previous year.
