The group's Red Tape Report Card says the province has made no meaningful progress in reducing the bureaucratic burden for small enterprises.
Spokeswoman Jennifer English says the province was recognized as a leader in cutting red tape only two years ago.
English says the study looks at political leadership, efforts to measure regulatory burden and long-term thinking.
Service Nova Scotia Minister John MacDonell says the provincial government has lowered the small business tax rate for three consecutive years, which shows its commitment to reducing red tape.
He says the poor grade is hard to understand because the federation recently named Finance Minister Maureen MacDonald and a public servant as finalists for an award recognizing those who slash red tape for small businesses.
"Trying to reduce the burden to business is important to us, to allow businesses to grow and help them compete and contribute to our economy because we can't do it alone as government," he said.
Among the other provinces, British Columbia earned an A while Prince Edward Island, Manitoba, the Northwest Territories and Yukon each earned a D-.