Alabama 6th most expensive state in which to start a business, survey says

Alabama, which routinely touts its pro-business policies and right-to-work laws, has appeared on a surprising list – as the sixth most expensive state in which to start a business.

Simplify LLC, which supplies information to small businesses, is out with a list calculated from several federal and professional statistical charts.

The ranking was made by examining basic business costs, labor costs and availability, cost of space and utilities, a healthy business environment and taxes.

According to Simplify, the number of new business applications nationally has increased by almost 60% over the last five years, when compared with the previous five. But at the same time, operating costs have been severely impacted by inflation.

California was ranked as No. 1 as the most expensive state, followed by New York and Hawaii. No surprises there, given the regulatory culture and expenses associated with California and New York, while Hawaii has high commercial rent costs and low rates of lending through the Small Business Administration.

But Alabama sits at sixth on the list because of a high LLC filing fee of $200, and low labor force participation, which is currently at 57.6%. The state has undertaken several steps to attempt to bring that number up.

Alabama has relatively high corporate income tax rates of 6.5% and a low SBA lending rate of $5.7 million per 100,000 residents.

On the plus side, Alabama ranked 17th in annual average wages, with $59,784 in 2023, and 11th for the cost of average rent per square feet of commercial real estate, with $14.75. It ranked 22nd for utility costs, with an average commercial electricity bill of $634.34.

Alabama wasn’t the only southern state to show up on the list. Tennessee was ranked at No. 4, due to its corporate tax rate and LLC filing fees.

The least expensive state? Utah, as the 10 least expensive states are all situated in the west or midwest. Many states in the region do not levy a corporate income tax and have relatively low fees for starting an LLC, according to Simplify.