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Why Entrepreneurs Love Dallas and Hate L.A.

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That Texas would rank highest among states friendly to small business, and California among the least is hardly surprising. But did you know that small businesses owned by politically conservative entrepreneurs were 17% healthier than those owned by liberals?

A unique new survey by and the Ewing Marion Kauffman Foundation ranks the states and cities on their business-friendly environment, producing mostly familiar results, but turning up many nuggets of small-business sentiment you don’t find in other surveys.

Frequent surveys of business friendliness and hostility usually rejigger the same Hall of Shame members, but base their rankings on macroeconomic data such as taxation levels, like the Small Business and Entrepreneurship Council’s recent report, which found the District of Columbia, Minnesota and New Jersey among the worst places for small businesses and Texas and Nevada among the best. That report looked at the impact of each tax system on entrepreneurship and small business. best

But the survey conducted by Thumbtack, a site that helps consumers get bids from local handymen, yoga instructors and even financial advisors, provides data based on a survey of the entrepreneurs themselves. The survey, based on responses from 6,000 of the 275,000 small businesses and freelancers listing their services on Thumbtack, offered a more granular idea of why small businesses love Dallas and hate Los Angeles. Best of all, the interactive web survey provides not just the data but the (anonymous) voices of survey respondents themselves.

For all the emphasis placed on taxation, the Thumbtack survey found that small businesses care almost twice as much about licensing regulations as tax rates. A fitness instructor in Los Angeles laments that “worker’s compensation, liability insurance, taxes, and permits for everything have made it extremely difficult for businesses to stay afloat in California!” A Los Angeles-based event caterer complains that “the state taxes LLCs in CA an $800 tax every year, no matter what.”

More than one photographer in the City of Angels complains about the complexity of multiple location permitting fees, but a number of small-business owners praise the abundance of customers in the crowded Southern California metropolis.

But click on Dallas, which merited an A+ compared with L.A.’s F, and the comments are nearly universally positive.

An audio and video technician says that “because Texas is a right-to-work state and does not have strong unions, just about anyone can start a business even with very few funds.” And a Dallas-based test instructor says “Texas is very supportive of business because the start-up cost is minimal (no business licenses required, etc.).” Overall, the survey seems to suggest that eliminating barriers to entry (licensing and start-up costs) may be more important than how much the state or city skims off the entrepreneur once he has earned revenue.

Another surprising finding of the Thumbtack survey concerns state and local government training programs for small businesses. The survey found that awareness of the existence of such programs correlated with a perception of business friendliness, boosting scores 10% over locales where awareness was lacking.

However, respondents actually attending the training rated their states less than one percent higher than those who knew of but did not participate in the training. The survey’s authors speculate that the finding indicates there may be room for improvement in the training—a subject they say needs further study.

The survey found a surprising political cast to the economic health of small businesses. Political conservatives had a 17% edge over liberals in running businesses whose current conditions, past 12 months’ revenue and future revenue forecasts were positive. Less surprising was that political conservatives in a liberal state like California were 30% less likely than liberals to view their state’s policies as supportive of small business.

The Thumbtack survey gave top honors to Idaho, Texas, Oklahoma, Utah and Louisiana, and found Rhode Island, Vermont, California, New York and Michigan to be the five worst states for small businesses.

Texas dominated the five top-rated cities, in which Oklahoma City took top honors, followed by Dallas, San Antonio, Austin and Atlanta. California meanwhile was home to the three cities most hostile to business—Sacramento, San Diego and Los Angeles, with Tucson, Ariz., and Detroit rounding out the bottom five. The South was the region most friendly to business; New England was the least friendly.


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10 Best Tax States for Small Business


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