Do Taxes Impact State Residence and Business Formation?

Income Taxes and State-to-State Migration

When it comes to moving around the U.S., state income taxes can be a big factor in deciding where people end up living. According to the Tax Foundation, these are the best and worst states for individual income tax rates and policies:

Best States for Individual Income Taxes

Worst States for Individual Income Taxes

This tax climate not only influences personal finances but can also affect the migratory patterns of residents seeking more favorable fiscal environments.

The map below shows each state’s net migration rate: the percentage change of total residents moving in versus total residents moving out. Red means more people are moving out than into a state, while blue indicates more people are relocating there than leaving.

Key Findings:

• New York (-45%), California (-42%), and New Jersey (-35%) had the largest declines in net migration percentage; notably, these states also impose the highest individual income tax policies in the U.S.

• Florida, Texas, Tennessee, and Nevada, recognized for their favorable individual income tax policies, observed the most significant net increases in migration, with rises of 51%, 35%, 24%, and 12%, respectively.

• The top 3 states Americans from high individual income tax states are moving to:

  • New York

    1. Florida
    2. New Jersey*
    3. Connecticut*

  • California

    1. Texas
    2. Arizona
    3. Florida

  • New Jersey

    1. Florida
    2. Pennsylvania*
    3. New York*

  • Hawaii

    1. California*
    2. Washington
    3. Texas

  • Connecticut

    1. New York*
    2. Florida
    3. Massachusetts*

Top States for Business Formation

The Tax Foundation report also highlights stark contrasts in the business environment across the U.S. According to its latest ranking, these are the best and worst states for corporate tax rates and policies:

Best States for Corporate Taxes

Worst States for Corporate Taxes

Next, we ranked all 50 states based on the number of new business applications per person in 2023, using data from the U.S. Census Bureau. A rank of 1 means the most new business applications, while 50 indicates the fewest.

Key Findings:

• Wyoming ranked No. 1 with the highest number of business applications per capita in the U.S. in 2023.

• Wyoming, Delaware, and Florida ranked as the top three states by number of business applications per capita in the U.S. in 2023.

• West Virginia, Maine, and Rhode Island ranked as the bottom three states by number of business applications per capita in the U.S. in 2023.

• Wyoming (39%), New Mexico (24%), and Colorado (22%) had the highest percentage increase in business applications from 2022 to 2023.

Our study reveals a clear link in some cases between state tax policies and people’s decisions on where to live and start businesses. States with high individual income taxes, like New York, California, and New Jersey, have seen significant drops in residents. In contrast, tax-friendly states, such as Florida, Texas, Tennessee, and Nevada, have experienced notable increases in migration. This trend extends to business formation, too, with Wyoming leading in new business applications, likely due to its favorable corporate tax environment. These findings highlight the influence of taxes on migration and economic activity, indicating a shift toward states that offer financial advantages.

Methodology

For this study, we analyzed the most recent migration/geographic mobility data (2022) and full-year business formation statistics (2022 and 2023) from the U.S. Census Bureau to assess the impact of taxes on U.S. resident migration and business formation. Individual income and corporate tax information was sourced from the Tax Foundation’s 2024 State Business Tax Climate Index.

About Clarify Capital

Clarify Capital is a financial services provider specializing in offering tailored financing solutions to businesses, aiming to support growth and operational efficiency.

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