The state, city, and neighborhood of your business location determines where you’ll need to register your business, pay taxes, and acquire licenses and permits.
When forming your strategy, consider which region-specific expenses, zoning ordinances, taxes, and tax benefits and incentives apply to your location for business. The cost and benefits of government agencies can vary significantly, so it’s important to pick the location that gives your business the best advantage. In this guide, we provide an in-depth explanation as to how costs and benefits vary by location.
Region-Specific Business Location Expenses
When starting your business, you should consider how expenses may vary according to your location and style of operation. These expenses can vary significantly, and include:
Salaries tend to be different in cities compared to suburban or rural areas. In a metropolitan area, you might have to pay much more for the same skills. As a result, your money usually goes further in rural areas. However, areas with smaller populations tend to offer fewer opportunities. You need to decide on whether the benefit of being in a metropolitan area outweighs the increased cost.
Minimum wage laws
The federal government imposes a minimum wage of $7.25 per hour. This is the default in several states, including Mississippi, North Carolina, and Wisconsin. Each state may also set its own minimum as long as it meets or exceeds the federal minimum.
Consider Alaska, with a minimum wage of $10.34, compared with New York with a minimum wage of $15 per hour. Cities may also set minimum wages, such as Seattle, Washington. This means that staffing costs can vary substantially according to state and should be factored into your business location costs.
If you own your business property, you must pay property tax. The local government applies the commercial property tax rate to your assessed property value. This determines the amount of tax that you pay. Consider the cost of commercial property tax, compare it to the local infrastructure, and then decide if this is worth the cost. States with the lowest property taxes include Hawaii, Alabama, and Louisiana.
Rental rates differ depending on the location’s demand for commercial property. You may also consider how changes in demand will affect rental rates as you renew your lease. Desirable areas with attractive features like heavy foot traffic and increased visibility are more likely to result in higher rents. Lower-demand areas, however, may not be able to provide attractive retail fronts or adequate parking.
Business insurance rates
Business insurance is necessary to help protect against risks and costs of property damage, lawsuits, and lost business income. Both the size of the property and the location can affect your insurance rate. Within states, insurance costs can also vary according to the different risks of those locations, such as storms or flooding.
State utility regulations, weather, local fuel costs, and power plant availability are just some factors that affect utility costs. Hawaii sounds like a great place to base your business, but it also has the highest utility costs. Idaho and Utah have among the lowest.
Government licenses and fees
The licenses, permits, and fees that your business needs to be legally compliant depend on geographic location and business activities. If a federal agency does not regulate your industry, your business will likely fall under state or local regulations. If so, you will need to determine which licenses or permits your business requires based on state, county, and city regulations of your area.
Advertising and marketing
You may find a business location that isn’t in a convenient or high-foot-traffic location. If so, you may need to compensate. This may require extra marketing so that customers know where and how to find you. Online business listings, print advertisements, websites, and social media platforms are all helpful tools.
You should also consider the demand of the area. If demand for your business is not high enough, you will need to make a greater effort to advertise it. However, recruiting qualified staff in a high-demand area may cost more.
Local Zoning Ordinances
A local zoning ordinance is a rule that regulates how property in specific areas can be used. Property is most often divided into residential, commercial, or industrial purposes. Zoning divides and organizes areas into districts or zones to separate different types of property use. They may also regulate lot size, placement, density, and the height of structures. If you want to buy, rent, build, or work out of a property for your business, it must satisfy local zoning ordinances.
Closely examine the local zoning ordinances when determining your location for business. Some may restrict or ban certain kinds of businesses. These regulations may also cause issues with other business operations. This includes delivery access, the number and types of employees permitted, customer parking, or the use of signs or advertising. These factors may affect your business location strategy. Consider how you plan to use the property for your business and if the zoning ordinances will be appropriate for your business’s growth.
In some cases, zoning ordinances include grandfather clauses, which may exempt your business from future changes to the current zoning regulations. If zoning ordinances do cause significant issues for a business, the owner can file for a special request. This may include zone variance, a conditional-use permit, or a zone change. Local governments generally control zoning. Check with the department of city planning in your area if you have questions or concerns.
State and Local Taxes
Businesses are subject to income tax at the state and local level, as well as federal taxes. These taxes are important to consider when you want to find your business location.
What is local tax?
Counties and municipalities assess the funds required for public services, such as education, garbage collection, and sewer maintenance. They then impose a local tax based on the assessed needs. Your business may also be subject to different rates of property taxes, payroll taxes, sales taxes, and licensing fees based on its location.
What is state tax?
Each state determines its own income tax rate, which is different from the federal income tax. Some states, such as Alaska, have no statewide sales tax or income tax, while a few have a flat-rate tax system. Most states use a progressive tax system so that they tax higher levels of income at a greater percentage. This means that tax rates across states can vary significantly.
How do state and local taxes affect businesses?
When choosing your location for business, consider the tax landscapes for your state, county, and city options. Pay attention to how income tax, sales tax, property tax, and corporate tax can change based on location. Likewise, consider lucrative tax options for different locations. Some areas create friendlier tax environments to attract certain types of businesses, such as tech or financial firms. This is why many cutting-edge companies are clustered around certain hubs, for example.
State and Local Government Incentives
State and local government incentives refer to exclusions, exemptions, or deductions that offer savings for taxpayers, including business owners. When state and local governments determine regulations, they may include benefits for certain commercial actions.
These might include creating a tax break for incorporating green energy sources into a building or conducting scientific research that benefits the public. There might also be incentives for bringing business to a specific area of the state. In some cases, the government aims to help businesses invest back into their business, improve sustainability, and assist disadvantaged business owners. Consider these when thinking about your location for business.
Types of state and local government incentives
Deductions reduce taxable income. For businesses, tax deductions are usually expenses that lower the total amount of income. Qualifying expenses can be claimed as either a standard or itemized deduction.
Tax benefits are applied to annual income tax calculations and are applied after all calculations are complete.
Exemptions and exclusions
Income exemption and exclusion determine certain types of income as non-taxable. These are pre-tax expenses that can help lower your taxable bottom line. This excluded income does not appear on returns.
A variety of tax benefits are referred to as tax shelters. Tax shelters include low- or no-tax-required vehicles, such as a 401(k). However, they also include tax havens. Tax havens are regions with politically or economically static environments that offer little to no tax liability. Delaware and Nevada in particular are considered such environments because they have business-friendly tax laws.
Many state and local governments offer special tax credits and benefits for small businesses. They also offer state-specific small business loans and other financial incentives. State and local governments aim to promote job creation, energy efficiency, urban development, and technology. They create incentive programs and benefits according to these specific location needs. To best take advantage of the benefits that you may be entitled to, research these incentives when considering your location for business.
Federal Government Incentives
Incentives are also available on a federal level. The federal government provides benefits to small businesses to promote economically, socially, and environmentally healthy activities and behaviors. Some incentives affect your business location strategy. Consider the following programs as you find your business location:
The HUBZone program intends to fuel small business growth in historically underutilized business zones. It intends to award at least three percent of federal contract dollars to HUBZone-certified companies each year. It also limits competition for certain contracts to businesses in historically underutilized business zones.
If your location for business is in a HUBZone area and satisfies other requirements, it may be eligible for program benefits. The program includes a 10 percent price evaluation preference in full and open contract competitions. It may also be eligible to compete for the program’s set-aside contracts. The program updates HUBZone maps every five years after 2021. It’s also expanding into some rural areas, so more locations are eligible for the certification.
Natural resource sales assistance program
This assistance program aims to help support small businesses by working with federal agencies to create a more level playing field. It accomplishes this by providing opportunities for small businesses to purchase natural resources and surplus property. Because this program includes surplus real estate, it can help you find the ideal location at lower cost.
Through this program, small businesses have an exclusive chance to compete in bidding before the government offers these resources on the open market. Small businesses also receive counseling and other assistance for government property sales and leasing.
Business Location FAQ
What is meant by business location?
A business location is the location where a business primarily operates. The business is based where it primarily operates, although there can be multiple geographical business locations. This can be different to the state it’s incorporated in, however.
How do I choose a good location for my business?
Consider your needs, demands, and budget when choosing the right location for business. Factor the expenses of a location, such as property tax or marketing costs. Then, compare the expenses with the benefits, such as government incentive eligibility or high customer traffic. Finally, use that comparison to determine if the location meets your bottom line.
Why should I choose a specific location for a business?
The right location for your business will help with its long-term success. A quality analysis of the business location helps you to determine your business needs. A specific location can affect the business expenses, tax regulations, government incentives, and zoning ordinances that your business is subject to.
What are the different types of locations for business?
The major types of business locations are retail, warehouse, industrial, and office space. Each of these locations usually have different purposes, geographical locations, and costs. You may want to consider where your competitors based their businesses if you have similar customer demographics. Supply and demand in each area are also crucial factors.