The 7 Best States to Start a Business

We know the economy is hurting, but some places are doing much better than others. When you are first starting a business, the question of "where" is one of the key questions you need to ask yourself.

U.S. News is out with a new report based upon two comprehensive studies that different approaches to measuring the which states are friendliest to entrepreneurs: the 2008 New State Economy Index, by the Kauffman Foundation and the Information Technology and Innovation Foundation, and the Small Business Survival Index 2008, by the Small Business and Entrepreneurship Council.

Here is their list of the top seven states for starting a business:

1. Washington. Washington is tops among the states in steps toward energy efficiency and using more alternative-energy sources. It has a well-established, highly productive manufacturing sector with high wages and a tech-intensive economy. In addition to these nonpolitical factors, Washington also has very low taxes, making the costs of growing a business quite low. The state also doesn't have its own income or capital-gains taxes.

2. Virginia. Virginia has a highly educated workforce and a high level of technological sophistication coupled with low taxes. Virginia has been one of the leaders in the information technology revolution, with the highest number of IT occupations in non-IT industries as a share of total jobs.

3. Colorado. Colorado is one of the fastest-growing states (the population is estimated to have grown 13 percent from 2000 to 2007) and currently boasts the third-most-educated workforce in the nation. The state comes in fourth place in terms of the number of patents issued to companies or individuals per 1,000 workers. The state also finishes in the top half of all states in terms of the level of income, capital gains, consumption, and property taxes.

4. Texas. Texas has the most globally-focused manufacturing sector in the country and the lowest workers' compensation costs of any state. It also lacks an income or capital-gains tax for individuals.

5. Nevada. Nevada has no income or capital-gains tax for individuals or corporations, the 15th-lowest property taxes, and the second-lowest number of government employees. Yet it ranks high in the export focus of its manufacturing sector, the productivity of its manufacturing sector, the number of patents issued, and the electronic sophistication of its healthcare system.

6. Utah. Utah has the third-fastest-growing firms in the country. Utah's government lowers the cost of doing business by making few health insurance mandates--the fourth fewest in the nation of any state.

7. Florida. Florida has been hit hard by the housing crisis, more than almost any other state. Its low corporate and unemployment taxes and nonexistent individual taxes attract new entrepreneurs. It ranks ninth in the nation in the export focus of its manufacturing sector and eighth in the number of Internet domain names created per firm.