States with no income tax make money by leaning harder on the taxes and fees that other states also use but treat as secondary: sales taxes, property taxes, excise taxes on fuel and tobacco, lodging and gaming taxes, severance taxes on oil and minerals, gross receipts taxes on businesses, and a long list of licenses and fees. The mix is different in each state, but the total has to add up to what a state government costs to run, and it does.
The States This Covers
Eight states charge no personal income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Washington is usually grouped with them, though it taxes long-term capital gains above a high threshold. Each one funds itself with a distinct combination of the tools below.
Sales and Use Taxes
Sales tax is the largest single revenue source for most of these states. Statewide rates run from 4 percent in Wyoming and 4.2 percent in South Dakota up to 7 percent in Tennessee. Florida charges 6 percent, Texas 6.25 percent, Washington 6.5 percent, and Nevada 6.85 percent. Alaska and New Hampshire have no statewide sales tax, though some Alaska municipalities collect their own.
Local add-ons matter. In parts of Tennessee, Texas, and Washington, combined state and local rates push past 8 percent, and in some places higher still. That is the visible trade: no tax on wages, more tax at the register. Groceries and prescription drugs are usually exempt or taxed at a reduced rate, but the specific exemption list varies by state, so the sticker rate does not tell you the whole story.
Use taxes capture what sales taxes miss. If you buy from an out-of-state retailer and no sales tax is collected, you owe use tax to your home state at the same rate. Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can also require out-of-state sellers to collect and remit sales tax once they clear an economic threshold, typically $100,000 in annual sales into the state, even without a physical presence there.1Supreme Court of the United States. South Dakota v. Wayfair, Inc., et al. That ruling expanded online retail collections significantly.
Property Taxes
Property taxes fund local government everywhere, but they carry more weight in states with no income tax. Counties and school districts set rates, and the revenue pays for schools, fire departments, road maintenance, and other local services. Without a wage-based tax at the state level, more of the funding burden lands on property, which means higher rates or higher assessments, or both.
Effective rates, meaning the actual percentage of a home’s market value paid each year, vary widely. Texas ranks among the highest in the country. Wyoming and Nevada sit closer to the national average. National effective rates run from below 0.5 percent to above 2 percent, and county-level numbers can diverge sharply from a state’s average.
Homestead exemptions reduce the taxable value of a primary residence in most of these states, and some also cap year-over-year assessment increases so long-time owners are not blindsided when values surge. Seniors, disabled residents, and veterans often qualify for additional reductions.
Excise Taxes on Fuel, Tobacco, and Alcohol
Excise taxes attach a fixed dollar amount to specific products. Cigarette taxes among no-income-tax states run from under $1.00 per pack in Tennessee to $4.50 per pack in Florida. Motor fuel taxes on gasoline range from about $0.18 per gallon in Alaska to over $0.50 in Texas and Tennessee once all components are included, and many states adjust the rate automatically based on inflation or fuel prices rather than requiring a new vote each time. Fuel tax revenue is generally earmarked for road and transportation funds, so drivers pay for the roads they use.
Alcohol is taxed the same way, by volume and beverage type. Excise taxes are built into the shelf price, so most people pay them without noticing; nothing shows up as a separate line on the receipt.
Tourism, Lodging, and Gaming
States that draw visitors use lodging and gaming taxes to shift part of the cost of government onto non-residents. State-level lodging tax rates in these states run around 6 to 7 percent, with cities and counties layering on their own charges. In a popular destination, the combined tax on a hotel room can top 15 percent.
Nevada is the clearest example of gaming as a budget pillar. Casinos pay a graduated tax on gross gaming revenue, topping out at 6.75 percent on revenue above $134,000 per month. Nevada’s gaming tax collections exceeded $1.2 billion in fiscal year 2024. Florida and others tax casino operations, sports betting, and lottery proceeds too, but none rely on gambling revenue the way Nevada does.
Car rental surcharges, amusement taxes, and convention center fees fill in the rest. The logic is the same across all of them: visitors help pay for the roads, police, and emergency services they use while they are in the state.
Natural Resource Severance Taxes
Alaska, Wyoming, and Texas tax the extraction of oil, natural gas, coal, and minerals. Severance taxes are calculated on either the market value or the volume of what comes out of the ground, and for Alaska and Wyoming they have historically been one of the largest single revenue sources.
Alaska handles this differently from anywhere else. A large share of the state’s oil severance revenue flows into the Alaska Permanent Fund, a state investment fund established in 1980. The fund’s earnings pay an annual dividend to every eligible resident, set at $1,000 per person in 2025. That structure both cushions the state budget and pushes resource wealth directly to residents.
Wyoming leans on severance taxes from coal, oil, and gas to fund schools and infrastructure. The obvious weakness of a resource-heavy budget is price volatility: when oil and gas prices fall, revenue can drop hard in a single year. Rainy-day and permanent trust funds are the standard hedge.
Business and Gross Receipts Taxes
These states still tax businesses; they just do not use a traditional corporate income tax based on profit. Nevada, Tennessee, Texas, and Washington all impose some form of gross receipts tax, which applies to a company’s total revenue before expenses. That guarantees revenue even from businesses reporting no net profit.
Texas calls its version the franchise tax. Retailers and wholesalers pay 0.375 percent on revenue; other businesses pay 0.75 percent. Companies with total revenue below $2,650,000 for the 2026–2027 period owe nothing.2Texas Comptroller of Public Accounts. Franchise Tax Nevada’s commerce tax runs from 0.051 to 0.331 percent depending on the industry. Washington’s business and occupation tax reaches as high as 3.3 percent for some service categories.
Because the tax hits revenue rather than profit, it lands hardest on low-margin businesses. A grocer with $10 million in revenue and $200,000 in profit pays the same as a software company with $10 million in revenue and $4 million in profit. The counter-argument is that a gross receipts tax is simpler to administer and harder to shrink with profit-lowering accounting.
Annual filing fees keep businesses in good standing. Falling behind on franchise tax or filing fees can cost a company its right to do business in the state, including its ability to sign contracts or file suit.
Regulatory and Licensing Fees
A wide net of fees rounds out state and local revenue. Doctors, lawyers, engineers, contractors, and other licensed professionals pay renewal fees to fund the boards that oversee them, commonly a few hundred to over a thousand dollars per cycle.
Motor vehicle registration is a steady contributor. Fees are set by weight, age, or value, and annual costs nationally run from around $20 to over $700 depending on the state and vehicle. Some no-income-tax states charge extra for electric vehicles to replace the fuel tax those cars do not pay.
Hunting and fishing licenses, state park fees, building permits, and business registrations all add to the total. A residential building permit typically runs $500 to $3,000 depending on the project. Individually these are small; collectively they are a meaningful slice of the budget, and the principle behind them is that whoever uses a specific service pays for it directly.
What This Means for You
Two points are worth knowing if you live in one of these states or are thinking about moving to one.
On your federal return, the state and local tax deduction lets you choose between deducting state income tax or state and local sales tax if you itemize; you cannot take both.3Internal Revenue Service. Instructions for Schedule A (Form 1040) With no state income tax to claim, you would pick sales tax, calculated either from receipts or from the IRS optional sales tax tables, with large purchases like a car or boat added on top. The total SALT deduction is capped at $40,400 for 2026, or $20,200 for married filing separately. For most middle-income households, the standard deduction still comes out larger unless property taxes or major purchases push the itemized total higher.
Moving to a no-income-tax state does not automatically end your obligation to the state you left. Income-tax states audit former residents, and they will keep taxing you as a resident unless you can show you actually changed your domicile. That means where you spend most of your time, where your family lives, where your bank accounts, doctors, car registration, and community ties are. Remote workers face a separate wrinkle: a handful of states, including New York and Pennsylvania, apply “convenience of the employer” rules that can tax your wages based on the employer’s location even if you work from a no-income-tax state, unless the remote arrangement was required by the employer rather than chosen by you.