July 9, 2025

How do 9 states get by with no income tax? A tax expert explains the trade-offs they choose

The bulk of South Dakota’s revenue stems from sales and excise taxes, which make up 3.86% of its 6.44% total burden. The rest is from other forms of taxation, like property taxes. South Dakota ranks No. 2 in the Tax Foundation’s State Tax Competitiveness Index because it has no individual income tax or corporate income tax. The Mount Rushmore State also doesn’t have an estate or inheritance tax. With its lack of income tax and sales tax, America’s largest state is also considered one of the most tax-friendly.

She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies. AARP is a nonprofit, nonpartisan organization that empowers people to choose how they live as they age. Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date. Straightforward and free, Cash App Taxes allows you to file state and federal returns with access to nearly every IRS form and schedule. Multistate returns aren’t supported, however, and professional support is limited.

This makes the highest capital gains tax rate in the state 9.9%.
Federal income tax is a necessary evil, but residents in a few parts of the country don’t have to pay state income taxes.
Some 7.6 million people, or more than 2% of the U.S. population, moved in total.
Straightforward and free, Cash App Taxes allows you to file state and federal returns with access to nearly every IRS form and schedule.
Additionally, the overall cost of living in Wyoming is about the same as the national average, thanks in part to affordable housing costs.
Despite that, the state’s cost of living index makes it highly affordable, thanks in part to its relatively low housing costs.

When are state taxes due?

South Dakota has higher-than-average costs of housing, transportation, and utilities. South Dakota takes a hit here from having a very low quality of life rank. Steber, who moved solely because he was transferred for work, also recommends looking into the local job market. If you lose a job and your local area doesn’t have many gigs in your industry, it might be harder to find new work. Burned by hot inflation and a steep cost of living over the past few years, many Americans have fled high-priced cities for more affordable places to call home. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.

At the most basic level, living in a state with no personal income tax means that you’ll get to keep a little bit more of your paycheck.
Texas doesn’t have an income tax, but it does levy a state sales tax of 6.25 percent.
Two of those – New Hampshire and Washington – do tax some income, such as money earned from stocks and other investments, but they don’t tax income earned from working.
Some or all of the offers that appear on this page are from third party advertisers from which FinanceBuzz receives compensation.
Estimates based on prior results, which will vary based on specific circumstances.

When a state doesn’t impose income taxes, it often imposes other taxes to pay for education, roads, health care and other public services. However, purchases are hit with a hefty state and local sales tax rate that averages 8.24 percent. New Hampshire relies heavily on property taxes, which account for a whopping 4.51% of its total 5.63% tax burden. That gives the “Live Free or Die” state the fourth-highest property tax rate in the country. Alaska doesn’t have an income tax or a sales tax, but it makes up for that with high property taxes that account for 3.54% of its 4.93% total tax burden.

Wyoming

If you live in a state without personal income tax, you generally get to skip paying state taxes on retirement income. Prior to 2025, New Hampshire taxed dividends and interest on investment income at a 3% rate. The Granite State also doesn’t impose sales taxes, but it does levy excise taxes on goods such as tobacco.

The state ranks 47th in affordability, 48th in cost of living, and 45th in housing affordability. Texas has a 6.25% sales tax, an average local tax rate of 1.95%, and an effective tax free states in us property tax rate of 1.47%. The state ranks 28th in affordability, 29th in cost of living, and 31st in housing affordability.

How we make money

State income taxes, like those at the federal level, are self-assessed, with individuals filing a tax return to the state. But if you’re thinking about relocating for a lower tax bill, be aware that some states that don’t have income taxes levy hefty taxes in other areas. There are plenty of strategies to lower your tax bill, including contributing to retirement accounts, leveraging tax credits and maximizing itemized deductions.

What does it mean to live in a state with no income tax?

Bella graduated from The University of Oklahoma with a bachelor’s degree in journalism. Despite that, the state’s cost of living index makes it highly affordable, thanks in part to its relatively low housing costs. Theoretically, if everyone moved to the nine states with no income tax, we would all be able to keep more of our hard-earned cash. Keep more of your hard-earned money in these income tax-free states.

Florida generates most of its revenue from property taxes, highway tolls and state university tuition. Living in a state without income tax might allow you to hold on to more of your hard-earned money. However, it won’t necessarily shield you from other taxes or a higher cost of living.

In addition to not charging an income tax, Wyoming doesn’t charge corporate levies, nor estate or inheritance taxes, making it the most tax competitive state in the U.S. It has a 4 percent sales tax and an average local sales tax of 1.44 percent, for a combined state and local tax rate of 5.44 percent. Tennessee residents don’t have to pay state taxes on their wages. The Volunteer State used to tax dividends and interest in a levy known as the “Hall Tax,” but that was phased out for the 2022 tax year. However, Tennessee has one of the highest state and local sales tax rates in the country at a combined 9.55 percent.

There is no state estate tax, long-term capital gains tax or statewide sales tax — although a majority of Alaska’s municipalities levy a sales tax, with rates of typically 2 percent to 5 percent. Plus, residents receive an annual dividend payment from the Alaska Permanent Fund, which was established in 1976 from the state’s oil and mineral revenues. Wyoming is the least populated state in the U.S., with a total of 581,381 residents calling it home, according to 2022 Census data. Because there’s no individual or corporate income tax, the state relies on property, oil, sales and excise tax to generate income. Wyoming scores above average when it comes to cost of living and housing — U.S. News & World Report gives it an overall affordability rank of 17 out of 50.