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Overview: States With No Income Tax in the United States

Triston Martin

Nov 03, 2023

Income tax is a major source of government revenue in the United States, accounting for over half of the federal budget. However, the taxation landscape differs significantly across the country. While many states impose an income tax on residents, there are seven which eliminate this tax altogether: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. The concept of states with no income tax might seem astounding, but these states have other methods of generating revenue.

The Concept of No Income Tax States

The notion of 'no income tax states' refers to states that do not levy an income tax on earnings, whether from employment, business, or other sources. This does not mean these states are devoid of taxes altogether. They simply choose not to tax income.

The reasons why some states choose not to impose an income tax vary. For some, it is a matter of economic strategy: by eliminating income tax, they hope to attract individuals and businesses, stimulating economic growth. For others, it is a political stance, reflecting a belief in minimizing government intervention in personal finances.

List of No Tax states in US

Here is a list of the seven states that don't impose an income tax:

  • Alaska is known for its abundance of natural resources and has no individual or corporate income tax. It does impose a Permanent Fund Dividend on its residents’ investments in the state.
  • Florida offers attractive retirement plans with no personal or corporate income tax. It is the most populous of the seven states, and a popular destination for retirees due to its warm weather and low cost of living.
  • Nevada has an interesting revenue model: it does not levy any taxes on individuals, but imposes a business license fee on employers. This acts as a substitute for income tax, since businesses pay the fee based on their income.
  • South Dakota does not impose individual or corporate income tax, but relies heavily on sales taxes and other levies such as real estate transfer taxes.
  • Texas has no personal or corporate income tax, but it does levy a Franchise Tax that imposes a 0.331% rate on gross receipts made by corporations.

Although these states do not levy an income tax, they still collect taxes in other ways. For example, some may have higher property or sales taxes than other states. It's important to note that in the case of some states, certain forms of income may still be subject to taxation.

Reasons why some states choose not to impose income tax

There are several compelling reasons why certain states choose not to impose an income tax. The first and foremost is economic stimulation. By eliminating income tax, these states aim to attract a larger population of residents, businesses, and investments. The absence of income tax can serve as a significant incentive for businesses to relocate or establish their operations in these states, leading to job creation and fostering economic growth.

Finally, some states are rich in specific resources and can afford to forgo income tax. For instance, Alaska has abundant oil reserves, the profits from which significantly supplement the state's revenue. Similarly, Nevada profits from its thriving tourism and gambling industries, making up for the absence of income tax. In such cases, these states can efficiently generate revenue without needing to tax individual incomes. These strategic decisions are reflective of each state's unique economic landscape and policy priorities.

Pros and Cons of Living in a State with No Income Tax

Living in a state with no income tax can be beneficial for individuals, especially those who wish to hold on to more of their hard-earned money. There are also drawbacks to living in such a state, as it may lack certain public services and amenities that come from having an income-based taxation system.

Benefits of Living in a State with No Income Tax

The main benefit of living in a state with no income tax is the potential to keep more of one's earnings. With no income tax, individuals' incomes are left untouched, meaning they can keep more for themselves and their families. This can be especially beneficial for retirees who wish to stretch out their pension or Social Security benefits.

Living in these states can also be beneficial in the long-term. For example, if you plan to start a business or invest in stocks and bonds, you may save more money on taxes than if you lived in a state with income tax.

Drawbacks of Living in a State with No Income Tax

Living in these states may come at a cost: public services and amenities may not be as well-funded due to lack of income tax revenue. For example, states with no income tax may have fewer public schools or universities, inadequate roads and bridges, and less access to social services such as health care. Additionally, these states often rely on other taxes (e.g., sales taxes) that can end up costing more in the long run.

How States with No Income Tax Generate Revenue?

States that do not collect income tax must generate revenue from other sources to fund their public services and infrastructure. Here's how they do it:

Sales Taxes

Many states without an income tax levy higher sales taxes. For example, Washington State doesn't have an income tax but charges a high sales tax on all retail sales, excluding some items like food and prescription drugs. These taxes apply to both residents and tourists, ensuring a steady income stream.

Property Taxes

States often rely on property taxes, which are taxes on land and property owned within the state's boundaries. Texas, for instance, has one of the highest property tax rates in the U.S. to compensate for its lack of state income tax.

Corporate Taxes

Some states charge corporate taxes or business license fees. Nevada, for instance, charges businesses a license fee based on their income, operating in lieu of an income tax.

User Fees and Toll Roads

Some states generate income from user fees, such as tolls on highways and bridges or fees for public services. Texas, for example, has numerous toll roads throughout the state.

Every state has a unique combination of these revenue sources, tailored to its specific economic circumstances and policy objectives.


The absence of an income tax can be a major boon for the residents of certain states, allowing them to keep more of their hard-earned money. However, it is important to understand that these states still collect taxes in other ways – through sales taxes, property taxes, tolls and fees – with each state's combination of revenue sources dependent on its unique economic landscape. Ultimately, whether or not a state imposes an income tax is determined by its policy objectives and economic goals.


What is the most tax friendly state in the United states?

The most tax friendly state in the United States is Alaska. It has no income, sales, or inheritance taxes and offers generous property tax exemptions for seniors and veterans.

Which US state has lowest sales tax?

The US state with the lowest sales tax is Oregon, which has no statewide sales tax. However, local taxes may apply in some areas.

What are the top 3 most taxed states?

The top three most taxed states in the United States are New York, Connecticut, and New Jersey. These states have high property, income, and sales taxes, leading to a high overall tax burden for their residents

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