The Seven States With No State Income Tax
Seven states do not collect income tax on wages, salaries, or investment returns: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. These states fund government operations through sales tax, property tax, excise tax on specific goods, and business taxes instead. If you move to one of these states or work remotely for a company based there, you will not owe state income tax on that income.
The absence of state income tax does not mean these states are tax-free overall. Most charge higher sales taxes to compensate — some above 8 percent. Property taxes, vehicle registration fees, and taxes on specific items like fuel or alcohol can be substantial. Understanding the full tax picture in each state matters more than focusing on income tax alone.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming have no state income tax on wages or investment income.
- These states typically rely on sales tax, property tax, and business taxes to fund government services instead.
- Moving to a no-income-tax state does not eliminate all state taxes — sales tax rates are often higher to compensate.
- If you work remotely for an out-of-state employer, your home state's tax rules apply, not your employer's state.
How Each State Funds Government Without Income Tax
Alaska funds state operations primarily through oil revenue and a sovereign wealth fund called the Alaska Permanent Fund. This fund invests oil royalties and distributes dividends to residents annually — amounts vary by year but have ranged from roughly $1,000 to $2,000 per person. Alaska also collects sales tax (no statewide rate, but municipalities charge 0 to 7.5 percent), property tax, and business taxes.
Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming all rely heavily on sales tax. Florida's statewide sales tax is 6 percent, plus local additions that can reach 7.5 percent total. Nevada's is 6.85 percent statewide. South Dakota's is 4.5 percent plus local tax. Tennessee's is 9.55 percent, the highest among these states. Texas is 6.25 percent statewide. Wyoming is 4 percent statewide. Each state also collects property tax, though rates vary widely by county and municipality.
All seven states tax business income, corporate profits, and specific goods. Tennessee and Texas tax investment income in limited ways — Tennessee taxes dividends and interest but not capital gains, while Texas has no broad investment income tax. These variations matter if you own a business or receive significant investment returns.
What Remote Work and Out-of-State Employment Mean for Your Taxes
If you live in a no-income-tax state but work remotely for a company in a state that does collect income tax, you owe tax to your home state, not your employer's state. Your employer will withhold based on your home address. This is true even if your company is headquartered in New York, California, or another high-tax state.
The reverse also applies: if you live in a high-tax state and work remotely for a company in Alaska or Texas, you still owe income tax to your home state. Your employer will withhold based on where you live. Moving to a no-income-tax state specifically to avoid taxes on remote work does change your tax situation, but only if you actually establish residency there — not simply by claiming a mailbox address.
Residency is determined by where you spend the majority of your time, where you maintain a home, where you register to vote, and where you hold a driver's license. States can audit these factors if a move appears designed solely to avoid taxes. Establishing genuine residency — renting or buying a home, updating your license and voter registration, spending most of your time there — is necessary for the tax benefit to hold.
State-by-State Tax Rates and What You Will Actually Pay
| State | State Income Tax | Sales Tax (Statewide) | Property Tax (Median) |
|---|---|---|---|
| Alaska | None | None (local 0–7.5%) | 1.19% |
| Florida | None | 6% | 0.83% |
| Nevada | None | 6.85% | 0.60% |
| South Dakota | None | 4.5% | 1.31% |
| Tennessee | None | 9.55% | 0.71% |
| Texas | None | 6.25% | 1.80% |
| Wyoming | None | 4% | 0.61% |
The table shows statewide rates only. Local and municipal taxes add to these figures. A purchase in Houston, Texas, for example, may be taxed at 8.25 percent when you include city and county additions. Property tax rates also vary significantly within each state — a home in rural Wyoming may be taxed at a different rate than one in Cheyenne.
Total tax burden depends on how much you earn, how much you spend, and what property you own. A high earner who spends little and owns no property may pay less total tax in a no-income-tax state. A retiree living on investment income in a state like Tennessee, which taxes dividends and interest, may pay more than expected. Comparing your specific situation across states requires looking at all three tax types together, not income tax alone.
Retirement Income and Investment Income Rules
Most of these seven states do not tax retirement income, which makes them attractive to retirees. Social Security is not taxed in any of them. Distributions from 401(k)s and traditional IRAs are not taxed in Alaska, Florida, Nevada, South Dakota, Texas, or Wyoming. Tennessee does not tax retirement account distributions either.
Tennessee and Texas do tax certain investment income. Tennessee taxes interest and dividends but not capital gains — if you sell stock at a profit, that gain is not taxed, but interest from bonds or dividends from stocks are. Texas has no broad investment income tax. The other five states tax neither investment income nor retirement distributions.
If investment income is a major part of your finances, Tennessee's partial tax on dividends and interest may matter. For most retirees drawing from retirement accounts and Social Security, the lack of income tax in these states is a significant advantage compared to states that tax retirement distributions.
Moving Costs and Residency Requirements
Establishing residency in a no-income-tax state requires more than changing your mailing address. You must obtain a state driver's license, register to vote, and establish a physical home — renting or owning. Most states require you to do this within 30 to 60 days of moving. Failure to update these documents can result in the state treating you as a non-resident and demanding taxes on income earned while you lived there.
Some states, particularly those with high income taxes, audit people who claim to have moved out. They may request proof of residency — utility bills, lease agreements, or evidence of time spent in the state. If you move to avoid taxes but maintain a home, job, or family in your previous state, that state may challenge your residency claim. The burden of proof falls on you to show you genuinely moved.
Moving itself has costs: deposits on rental housing, utility setup fees, vehicle registration, and a new driver's license. These upfront expenses may take months or years to recoup through tax savings, depending on your income level. For someone earning $40,000 per year, the tax savings in a no-income-tax state may be $2,000 to $4,000 annually. For someone earning $150,000, the savings could be $7,000 to $10,000 or more, depending on the state's income tax rate you are leaving.
How These States Compare to High-Income-Tax States
The seven no-income-tax states exist alongside states with income tax rates as high as 13.3 percent (California). A person earning $100,000 in California owes roughly $9,500 in state income tax. The same person in Texas owes zero state income tax on that income, though they will pay sales tax and property tax. Over a decade, the difference can exceed $100,000 before accounting for other taxes.
However, some high-tax states offer benefits that offset the cost: better-funded schools, more extensive public transportation, stronger social services, and higher average wages. A job in California or New York may pay 20 to 30 percent more than the same role in a no-income-tax state, which can more than cover the additional taxes. The decision to move for tax reasons should account for job availability, cost of living, and quality of life, not tax rates alone.
Frequently Asked Questions
If I work in a state with income tax but live in a no-income-tax state, do I owe both?
No. You owe tax only to your state of residency. If you live in Texas and work in Oklahoma (which has income tax), you owe Texas nothing and Oklahoma nothing — Texas has no income tax. If you live in Oklahoma and work in Texas, you owe Oklahoma income tax on your Texas wages. Your employer withholds based on where you live, not where you work.
Does moving to a no-income-tax state save money if I own a business?
It depends on your business structure and income level. All seven states tax business income in some form. If you operate as a sole proprietor or S-corporation, you will owe no state income tax on business profits in these states, which is a major advantage. If you operate a C-corporation, corporate tax rates vary. Consult a tax professional in the specific state before moving, because business tax rules are complex and state-specific.
Can I claim residency in a no-income-tax state if I only own a vacation home there?
No. Residency requires that you live there as your primary home and spend the majority of your time there. Owning a vacation property does not establish residency. States audit residency claims and look for evidence of where you actually spend time — utility bills, voter registration, driver's license, employment location, and family ties all factor in. Claiming residency falsely can result in back taxes, penalties, and interest.
Do I have to pay federal income tax even if my state has no income tax?
Yes. Federal income tax applies in all states regardless of whether the state collects income tax. The seven no-income-tax states reduce your total tax burden but do not eliminate federal taxes. You will still file a federal return and owe federal tax based on your income level and filing status.
Which of these states has the lowest overall tax burden?
That depends on your personal situation — income level, spending habits, and property ownership. Nevada and Wyoming have the lowest property tax rates and moderate sales taxes, making them attractive for high earners who own property. Alaska has no statewide sales tax and the lowest property tax rate, but local sales taxes apply in most areas. Tennessee has the highest sales tax, which affects everyday spending. Compare all three tax types for your specific circumstances rather than focusing on one.