Over half of all taxes collected by the IRS — $3.1 trillion in fiscal 2014 — comes from income taxes. Like the federal government, state and local governments also rely heavily on income taxes. Very few people in the United States can avoid paying federal income taxes, but there are seven states where individual income is not taxed at all at the state level.
24/7 Wall St. reviewed the most recently available data from tax research group the Tax Foundation. Just seven states — Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming — do not levy an individual income tax. Relatively few New Hampshire and Tennessee residents pay tax on their income, but because these states collect taxes on dividends and interest income, they were not included on this list.
Tax collections account for the bulk of every state’s revenue, which is needed to invest in and repair infrastructure, maintain public services such as police and fire departments, and pay other government employees — to list but a few examples. Without an income tax, these states often need to find another source of revenue.
On average, in a given year, 22.5% of state and local tax collections come from general sales taxes. In five of the seven states, this proportion is well over 30%. In Washington, 44.8% of state and local tax collections come from sales taxes, the highest percentage nationwide. Similarly, some of these states rely more heavily on property taxes. Property taxes in Texas and Wyoming, for example, account for 40.4% and 37.5% of tax collections respectively, each well above the average proportion across all states of 31.3%.
24/7 Wall St. reviewed the seven states with no income tax using data on state and local tax rates and collection data from tax research group the Tax Foundation’s report, Facts & Figures 2016. Individual income tax, as well as corporate income tax rates are as of January 1, 2016. State individual, as well as corporate income tax collections per capita are from 2014. General sales tax rates and per capita collections are from January 1, 2016 and 2014 respectively. Excise tax data, including gasoline tax rates, are also as of January 1, 2016. Property taxes paid as a percentage of owner-occupied housing values are from 2014, and state and local property tax collections per capita are for 2013. State and local debt per capita is for 2013 — all from the Tax Foundation. We also looked at per capita personal income as of 2014 from the Bureau of Economic Analysis (BEA). Regional price parities in each state, also known as cost of living, also came from the BEA and is for 2013.
These are the states with no income tax.