04/20/2012 05:41 pm ET

State Taxes: Which Is Best For Small Businesses?

State tax systems can make or break you when you're a business owner. And according to the Small Business & Entrepreneurship Council's Business Tax Index, you might want to consider setting up shop in South Dakota, which it ranked as the best tax environment to run a small business.

The index, which looked at tax environments in all 50 states and the District of Columbia, compared 18 different tax measures to determine the good and the bad, including income, property, unemployment, gas and diesel levies, capital gains and consumption-based taxes.

The report clarifies that state and local taxes can significantly boost a state's competitiveness. "In the end, all taxes matter, whether imposed at the federal, state or local level of government. They matter to consumers, entrepreneurs, investors and businesses. And they matter when it comes to economic growth and job creation," according to the report, which was authored by Raymond Keating, chief economist for the SBE Council.

The best state tax systems are:

1. South Dakota
2. Texas
3. Nevada
4. Wyoming
5. Washington
6. Florida
7. Alaska
8. Alabama
9. Ohio
10. Colorado

The worst state tax systems are:

51. District of Columbia
50. Minnesota
49. New Jersey
48. New York
47. Iowa
46. Maine
45. California
44. Vermont
43. Hawaii
42. Connecticut

Several states, like Ohio and Indiana are making moves in a positive direction by eliminating controversial taxes, including a death levy, though others, like New York, Oregon and Illinois have increased taxes and have therefore become less competitive markets for small business, according to the report.