[State of the Industry] Your State: Friend or Foe?

South Dakota, Nevada and Wyoming professionals operate in the “friendliest” states to do business, while those running firms in the District of Columbia, New Jersey and California do not, according to the Small Business Survival Index 2007.

Compiled by the Small Business & Entrepreneurship Council, the index looked at 31 government-imposed or -related costs affecting small business, such as taxes, government spending, property rights, and regulatory, health care and energy costs.

WARM WELCOMES. Justin Bosma, branch owner of P&K Pest Control in Sioux Falls, isn’t surprised South Dakota made the top spot. “It’s very easy to do business in this state. Taxes are very low.”

In fact, the top three states have no personal or corporate income, or capital gains taxes, which definitely helps the bottom line and spurs investment, professionals said. “Doing business here in Nevada is great,” said Las Vegas-based Pitbull Pest Control President Joey Toth, citing the state’s “very minor” quarterly tax on gross sales. Low taxes encourage professionals to incorporate, he added. “You don’t have to be a mom-and-pop shop, running as a sole proprietorship, and take on all that liability yourself.”

Regulations also are more relaxed in the “Wild West,” Toth added. The Nevada Department of Agriculture is “hands off” with straight-forward requirements, he said.

Bosma cited South Dakota’s reciprocity for licensing. His license and continuing education hours come through P&K Pest Control’s main office in Iowa and transfer to South Dakota. However, not all states play that way. Bosma gets many customers calling from across the border in Minnesota, but can’t serve them because he’s not licensed there. Minnesota (ranked 45th) “has absolutely no reciprocity,” he said.

Robust economies in the friendliest states are icing on the cake. “The booming economy makes for a good business environment,” said Hank Thompson, owner of Best Pest Control, Casper, Wyo. “It makes it nice to do business when people can afford your business.” Mining of coal, gas, oil and uranium is drawing an influx of new business and people, he said. “Home building is nuts. We’re still short on housing.”

A low cost of living also helps, Bosma said. “Sioux Falls is expanding so quickly. It’s a great place to start any small business.”

TOUGH LOVE. In less friendly places, taxes, regulations and mandates can be a big headache. “We’re probably one of the most taxed states,” said Michael Cavanaugh, COO of Cavanaugh’s Termite & Pest Services, Freehold, N.J. Beside business, corporate, personal, property, municipal, toll road and other taxes, the state — ranked 50th — is increasing payroll taxes on all workers to fund its recently passed New Jersey Family Leave Act. The new law gives employees in any sized company six weeks paid leave to care for newborns or sick family members. “This is a very liberal state, to put it mildly,” Cavanaugh said.

New Jersey professionals also must call the Board of Public Utilities before they dig, even to install bait stations or trench around a house, Cavanaugh added. This causes a delay in service of at least three business days and increases administrative costs. The industry thought it had achieved an exemption for digging with non-mechanical equipment, but written clarification of the law is still forthcoming, said New Jersey Pest Management Association Executive Director Len Douglen.

In California, multiple regulatory agencies, including OSHA (both at the federal and state levels), the Structural Pest Control Board, Department of Pesticide Regulations, and state agricultural departments in each county make doing business a challenge, said Robbie Sneed, manager, Delk Pest Control, Stockton, Calif. “Each one might interpret a rule or law differently,” he said. “There’s a lot of inconsistency.” Delk Pest Control has found following the strictest interpretation of a law or regulation is the most prudent approach, he said.

BUSINESS AS USUAL. Yet these professionals are hardly wringing their hands. “We’re surviving,” Douglen said. “The smart players know how to do it.”

Sneed agreed. “To me it’s just normal business. It’s just the way it is.”

Circumstances can change quickly, too. Michigan, ranked as the sixth most friendly, restructured its Single Business Tax in 2007. This year, many small businesses are reeling from increased tax liability. The new Michigan Business Tax is “actually having a bigger negative effect than the Single Business Tax did,” said Chuck Russell, president, Eradico Services, Novi, Mich. “It’s difficult. It’s creating more of a burden.” High taxes make it difficult to increase growth and attract new business, which only compounds the state’s housing and manufacturing woes and flight of talent to other states, he said.