Small business owners in Texas, Utah, Idaho, Virginia and Louisiana rated their states as having the friendliest business environments, according to a  study released this morning.

In contrast, small businesses gave California, Rhode Island and Illinois failing grades for business viability, and those in Connecticut and New Jersey gave their states a “D.” The study—conducted by and the Ewing Marion Kauffman Foundation—surveyed 12,632 small businesses across the nation about the business environments in their states and cities.

“Thousands of small business owners across the country told us that the keys to a pro-growth environment are ease of compliance with tax and regulatory systems and helpful training programs,” said Jon Lieber, chief economist of, a San Francisco-based online service that connects vendors and consumers.

Among the findings in the third annual survey:

  • Tax rates were less of a factor than overall regulatory burden when determining the friendliness score of a jurisdiction.
  • Professional licensing requirements were the most important regulatory issue in determining a state’s overall friendliness to small businesses, followed by the ease of filing taxes.
  • The highest ranking cities included Colorado Springs, Colo., Boise, Idaho, and Houston; poor-performing cities included Sacramento, Calif., and Buffalo, N.Y.

James Gattuso, a senior research fellow at The Heritage Foundation and an expert on regulatory affairs, said it’s no surprise regulatory environments mean so much to small business owners. “We talk about taxes more in Washington because that’s an obvious issue, but local, state and federal regulations have as great an impact on businesses and their potential to grow,” said Gattuso.

Regulations and their associated costs have exploded in recent years, said Gattuso, who pointed to a March report that showed the Obama administration has issued 157 major rules—those expected to cause $100 million or more per year in economic impact or significantly raise prices for affected products—at an added compliance costs to Americans of nearly $73 billion.