DC Among “Worst States In America For Starting A Business”

5802 Georgia Avenue, NW
Photo from PoPville flickr user rockcreek

Thanks to a reader for sending this depressing news from the Business Insider:

Small Business Survival Index: 84.795 (#51)

Personal Income Tax Rates: 8.500 (#44t)

Corporate Income Tax Rates: 9.975 (#50)

Property Taxes: 4.13 (#41)

Workers’ Compensation Benefits Per $100 of Covered Wages: 0.26 (#1)

Note: According to the report, the District of Columbia was not included in the studies on the states’ liability systems, eminent domain legislation and highway cost efficiency, so “D.C.’s last place score actually should be even worse.”

From speaking to small business owners this is sadly not surprising. You can see the full list here.

19 Comment

  • As has been pointed out in many other places, however, surveys like this one are fatally flawed because D.C. is a city, rather than a larger state that has a mix of urban and rural jurisdictions. A more appropriate study would be comparing cities to cities.

  • There are only 50 states. #14 Worst is actually about average.

    According to their list, CA, NY, and NJ – 3 of the biggest most developed states with huge number of businesses. The environment couldn’t be that bad.

    Their methodology is not a very good indicator for their conclusions.

  • Thank you [email protected]:48 for poiting this out (again). It is one of the many frustrations of our colonial state here in the District.

  • The numbers you list are not encouraging, but the inept bureaucracy of the District government is the greatest hindrance for new businesses. They often operate with total hostility toward small business owners.

  • I think I posted the same report here last week and was roundly shouted down, and we even then debated estate tax details which made me realize what an old dork I’ve become. Regardless, I am sure this report is accurate to some degree despite its flaws. I see evidence of it every day. And, ever notice how many borders to DC (ie MD on Georgia Ave) are just stacked with businesses, while the number plummets as soon as you cross into DC?

  • Any time anyone tries to claim that this is NOT the worst place to start a business I’ve got to ask if they’ve tried. Have you literally lost entire days of your life at DCRA? Spent weeks waiting for PEPCO to call you after calling/emailing/sending certified letters? It absolutely sucks, and the whole process reeks of corruption. What the Capital City Diner guys are going through is pretty typical:


  • Just as a counterpoint, about a month or two before that piece came out, CNN Money named DC one of the best places to launch a small business.


    Not saying either one is right or wrong, but more that these reports are generally meaningless.

  • This was actually posted on many other sites a couple weeks ago, and in the full report they explain their methodology and how they took into account the fact DC is a city being compared to states. No matter what, DC would be dead last because of the factors they mentioned.

  • If you go look at the actual report, the measurements they use are screwy. The personal and corporate income and capital gains tax rates they use are the highest brackets, so a state with a progressive system (which would be better for new small businesses) would come out the same as one with a flatter tax of the same percentage. They also look at estate tax (relevant only for substantial existing businesses owned by dead people) and number of state and local government employees per capita (#3 Alaska, #2 D.C., #1 Wyoming: precisely the reverse order of population, because small places still need a government).

    It’s clear that this is actually a measure of the worst states to be a rich person in, big business owner in, or right-wing ideologue in. Go ahead and read the whole report at:

    I have only dealt with DC and Georgia, but working with the DCRA is much, much easier than the Georgia Secretary of State’s office. I’m not saying it’s painless, but starting a small business, I have had no evidence that D.C. is uniquely bad.

    Given the criteria of that questionable study, I’m proud that we’re ahead of every state of the union.

  • It would be misleading to tie the taxes and workers comp. figures to business survivability. One could argue that it’s hard to survive here is because the competition is stiff which is indicative of a good business atmosphere.

    Here is an example: if it’s too hard to open a business in a state then no new businesses open and no new business goes out of business.

  • I think the real question is – how hard would it really be to improve the system so that DCRA is helpful, permits are streamlined, inspections done on time etc. What would it take? Hiring ten extra inspectors? Or maybe firing ten bad inspectors?

    When I put in a basement apartment, DC inspectors failed to show up twice for inspection appointments. This delayed everything by one month, and therefore cost me an additional “tax” of $1,500.00 in lost rent. How about they just charge me an extra $500. up front in an actual fee (bribe) and get the job done on time?

  • That CNN Money thing blows my mind, really. How does DC rank near the top on one and the bottom on the other?? I suspect the CNN Money one has a special system for ranking as they seem to be aimed at downtown K Street tech and law firms, which aren’t the bulk of what I think of when I think of small business. Weird.

    But lets flip it around: if DC is NOT such a horrid place to start a business, what explains the vast amount of empty storefronts and/or office space in so many areas? Take Georgia Ave in general for example?

  • Victoria,

    How about not involving DCRA in your remodeling projects?

  • It may be in the methodology. It’s fairly easy to go down to DCRA and pay your money and get a basic business license. It’s much harder to start a business in a property where an inspection needs to take place. So if you’re doing a basement apartment, hard. If you’re moving into previous occupied space, easy-er.

    A lot of these things come down to the details and assumptions, which no magazine article is ever going to spell out explicitly. I would venture to say that it’s fairly difficult to start a business in DC because rents are often extremely high and average income is very low. I think the DCRA stuff is annoyingly bureaucratic, but probably not any more annoying than anywhere else. And yes, I have had lost days sitting in their office only to be crapped on by them later.

  • The methodology is completely flawed. When starting a business, your investors don’t really care about the local tax rates and worker’s benefits when other factors are much more important. When the wealthiest states in the union are listed as the “worst” places to start a business, it is self-evident that they’re measuring the wrong things to come to their conclusions.

    The “best” places to start a business would be the ones with:

    – lowest failure rates
    – highest per-capita rate of starting a business
    – highest salaries of business owners relative to the average salaries in that state.

    That’s a set of measurements that concentrates on results rather than dubious metrics that are only related to the personal hobbyhorses of the authors.

  • This is all really really helpful guys. Please continue!

  • My understanding is that DC has a flat tax rate no matter the size of the business, making it easier for franchises or alcohol-serving institutions to flourish and small businesses to struggle.

    Of course, my understanding could be wrong, but I’ve read screeds by various entrepreneurs, like Joe Englert, about it.

  • Thor – How about my next-door neighbor puts in an un-inspected apartment with bad wiring and no fire walls and burns my house down?

    Regulation/inspection is a good thing. It just ought to work – i.e. inspectors show up when scheduled etc.

    Oh wow – my Captcha is “Oates” As in Captain Lawrence Edward Oates – one my heros and definitely one of the coolest Antarctic explorers ever. He died on Robert Scott’s “Terra Nova” expedition of 1910-13, a FU attempt to reach the south pole.

    And if anyone is looking for a good holiday gift, especially for teenage boys, check out “Shackleton’s Stowaway.”

  • @Victoria/Thor:

    DCRA *should* be a good thing. Like any regulatory function its intent is to protect the public interest.

    The problem is that DC’s system has historically be mired in ineptitude and corruption. Further, DC’s permitting requirements are among the most restrictive in the nation. And homeowners are not allowed under any circumstances to do their own gas, electrical or plumbing work. It is very difficult to get building permits on your own work of any kind other than those, unless you pay a “permit expiditer” (= someone who knows someone at DCRA).

    This actually doesn’t protect anyone except the unions. In most places you can get a permit and do your own work, and have it inspected by the government agency, just a contractor’s work. Using a licensed contractor doesn’t mean anything as far as the quality of work. Actually, a lot of times when you use a so-called licenced contractor who does a lot of work in DC, the DCRA inspector doesn’t even look at anything, because they all scratch each others’ backs. I have personally experienced this many times.

    At the end of the day, the system does not work the way it should and there are strong incentives to do work without permits. The chances of getting caught are not very high, and you will save tons of money by doing it yourself or hiring people who have good reputations who are not licenced in DC, and doing the work without permits.

    As long as the system is designed to basically funnel the work to people who have buddies in the system I have to agree with Thor. There are some signs of improvement in the last few years, e.g. postcard permits for certain types of work, but it is still very difficult and expensive to work within the system for any big job.

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