Which State Has No State Income Tax?
In the U.S., nine states do not impose a state income tax. This can be an attractive feature for individuals looking to minimize their tax burden. If you're considering relocating or investing, it’s essential to know which states offer this advantage and what other taxes may apply in those states.
States with No Income Tax
The following nine states have no state income tax:
Alaska does not impose a state income tax. However, it does rely heavily on revenue from oil and gas production. While there are no income taxes, the state does have sales taxes and property taxes.
Florida is one of the most popular states for retirees and individuals looking to avoid state income tax. Though there is no state income tax, Florida does have a sales tax and property taxes.
Nevada is known for its entertainment industry, Nevada does not have a state income tax. However, the state makes up for it through high sales taxes and gaming taxes.
South Dakota is another state without an income tax, which is appealing to businesses and residents alike. Like other states in this category, it makes revenue through sales taxes and property taxes.
Tennessee phased out its state income tax on earned income in 2021. Previously, the state taxed interest and dividends but now has no income tax on any type of earnings. However, the state relies on sales tax for revenue.
Texas is a popular state for residents seeking to avoid state income tax. The state compensates with higher property taxes and sales taxes, but it has no income tax on wages or salaries.
Washington does not have a state income tax, but it does rely on sales tax and business and occupation taxes to generate revenue.
Wyoming’s lack of state income tax makes it a desirable place for businesses and residents alike. Like other no-income-tax states, Wyoming has higher property and sales taxes.
New Hampshire does not tax earned income, it does tax interest and dividends as well. This makes it a good choice for those with employment income but may not be ideal for investment-high income earners.
How Do These States Generate Revenue?
Although these states do not levy an income tax, they still need to generate revenue to fund government services. Most of these states rely on other forms of taxation, such as:
Sales Tax: Almost all of these states levy a sales tax, which can vary in rate depending on the state.
Property Tax: States like Texas and Washington have high property taxes to compensate for the absence of an income tax.
Business Taxes: Some states, like Washington, impose taxes on businesses to make up for the lack of income tax.
