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Why Tax Rates Aren't a Cure-All for Small Businesses

The takeaway? Business-wise, it can be an advantage to live in a state with no sales tax or no income tax. But the actual rate paid did not seem to be a top concern for most of the survey takers. Overall, what mattered more was that tax systems were easy to understand, with convenient (ideally online) payment systems,and easy-to-reach, knowledgeable support staff.

Consider, for example, the South Carolina Business One-Stop, a website that consolidates all the information and forms a small-business owner might need. In one place, you can change your address, order a license application, pay quarterly taxes and sign up for an educational webinar. It's no wonder South Carolina respondents praised their state's small-business environment. (By contrast, compare South Carolina's extensive, welcoming site with California's relatively bare-bones Small Business Assistance Center, a division of the California Tax Service Center).

Regulations -- as separate from taxes -- were another hot-button issue. About one-third of respondents mentioned regulation or licensing in their comments, with most offering strong criticisms of their state's regulatory environment. Again, owners did not object to regulations per se, but they were frustrated by the layers of complexity that made compliance and hiring difficult (especially when states, counties and towns all had separate procedures).

America may be sharply divided along ideological lines, but this survey, completed by business owners of all political persuasions, shows there are relatively straightforward, nonpartisan fixes that any state can make to improve their small-business environment. One top recommendation is to simplify state tax codes, creating more uniformity between regional and local policies, and set up online systems that offer "one-stop-shopping" for all tax-related issues.

Similar websites could also be established for all regulation and licensing issues, so business owners can find all the relevant forms in one place. States could also re-evaluate their licensing procedures, requiring licenses only for those businesses where quality assurance is of vital importance.

Most surveys that tout the "best states for business" use one specific data point as their main point of reference, whether it's tax rates or the number of well-paying "creative class" jobs. The Foundation survey went deeper, to find out in business owners' own words which specific policies made a difference, good and bad.

The good news is that main challenges are fixable and nonpartisan. All that's needed is the political will to make them happen.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
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