Individual income taxes are the largest source of income for the federal government, accounting for 48% of federal tax revenue. Income taxes are similarly important to the vast majority of state government balance sheets. Most Americans pay income taxes to both the federal government, and to their state.
There are, however, a handful of states that manage to function without relying on individual income taxes. To identify the states with no income tax, 24/7 Wall St. reviewed the tax code in each state using the latest tax data compiled by tax policy research organization Tax Foundation. All data included in the article came from the Tax Foundation’s Facts & Figures 2020: How Does Your State Compare? report.
In the vast majority of states, individual income taxes represent over 15% of annual tax revenue. Because income tax is such an important and reliable revenue source, the states with no income tax make up for the lost potential revenue in other ways.
Two states on this list, for example, have major tourist industries and raise revenue through higher than average sales taxes. Three other states are rich in natural resources and are able to bring in additional revenue through taxes on mineral and gas extraction operations. These are the states with the lowest and highest gas taxes.