Only two states charge businesses neither a corporate income tax nor a gross receipts tax: South Dakota and Wyoming.1Tax Foundation. State Corporate Income Tax Rates and Brackets, 2026 Four more states — Nevada, Ohio, Texas, and Washington — skip the traditional corporate income tax but tax gross receipts instead. If you are researching states with no corporate income tax hoping to lower your total tax bill, the honest answer is that the label promises more than it delivers. The federal 21-percent corporate tax applies everywhere, operating in a state creates tax obligations regardless of where you incorporated, and several other layers of state and local tax stay in place.
The Two States With No Business Income or Receipts Tax
South Dakota and Wyoming are the only states where a corporation’s profits go untouched by any state-level tax on net income or total revenue.1Tax Foundation. State Corporate Income Tax Rates and Brackets, 2026 Neither state has a personal income tax either, so pass-through income flowing to individual owners who live there also escapes state tax.2Tax Foundation. State Individual Income Tax Rates and Brackets, 2026
Both states fund themselves largely through sales taxes, property taxes, and, in Wyoming’s case, severance taxes and royalties tied to mineral extraction.3Wyoming Legislature. Revenue For a business physically based in one of them, the savings are real. What you avoid is the state taking a cut of your profit simply because you earned it. What you do not avoid is federal tax, sales tax on purchases, payroll tax on employees, and property tax on anything you own.
Four States That Tax Gross Receipts Instead
Nevada, Ohio, Texas, and Washington replace the corporate income tax with a tax on gross receipts or total revenue.1Tax Foundation. State Corporate Income Tax Rates and Brackets, 2026 The distinction matters. Gross receipts taxes apply to total revenue, not profit. A company that pulls in $10 million and loses $2 million still owes tax on the full $10 million. Predictable for the state; painful for low-margin or unprofitable businesses.
Nevada Commerce Tax
Nevada’s Commerce Tax applies to any business with more than $4 million in Nevada gross revenue per fiscal year.4State of Nevada. Commerce Tax The rate varies by industry classification. Businesses under the threshold owe nothing, which keeps the tax invisible to most small operations. Nevada also has no personal income tax, so pass-through owners escape state income tax on both ends.
Ohio Commercial Activity Tax
Ohio’s Commercial Activity Tax is 0.26 percent on Ohio taxable gross receipts above $6 million per year.5Ohio Department of Taxation. Commercial Activity Tax (CAT) The $6 million exclusion, which took effect in 2025, shields most small and mid-sized businesses. Any business expecting to cross the threshold must register within 30 days of exceeding it.
Texas Franchise Tax
For 2026, the Texas Franchise Tax applies only when total revenue exceeds $2,650,000.6Texas Comptroller of Public Accounts. Franchise Tax Rates, Thresholds and Deduction Limits Above that, the rate is 0.375 percent for retail and wholesale businesses and 0.75 percent for everyone else, calculated on a modified version of total revenue after certain deductions. A business under the threshold owes nothing but still has to file a “no tax due” report to stay in good standing.
Washington Business and Occupation Tax
Washington’s Business and Occupation tax has no general exemption threshold, so small businesses owe from the first dollar of gross income. Rates depend on industry classification: 1.5 percent for certain service categories, 1.75 percent for others, and lower rates for specialized activities.7Washington State Legislature. Washington Code 82.04.290 – Tax on Service and Other Activities The tax reaches anyone with substantial nexus in the state.8Washington State Legislature. Washington Code 82.04.220 – Business and Occupation Tax Imposed Of the four gross-receipts states, Washington is the one most likely to catch a new business owner off guard, because there is no meaningful revenue floor.
Federal Corporate Tax Applies No Matter Where You Are
No state tax break changes what you owe the IRS. Every C-corporation in the United States pays a flat 21-percent federal corporate income tax on net taxable income, regardless of the state of incorporation or operation. That rate has held since the Tax Cuts and Jobs Act of 2017.
Pass-through entities such as S-corporations and LLCs taxed as partnerships do not pay federal income tax at the entity level. Profits flow to the owners’ personal returns and are taxed at individual rates. Choosing a no-corporate-tax state can save real money at the state level, but the federal layer never goes away. Anyone reading “no corporate income tax” as “no income tax at all” is misreading it.
Incorporating in a No-Tax State Does Not Shield You From Other States
This is where most of the wishful thinking collapses. Forming a Wyoming LLC while running your business from Illinois does not avoid Illinois corporate income tax. States tax businesses based on nexus, which is the degree of connection between your business and the state, not based on where your articles of incorporation happened to be filed.
Most states use a factor-presence test that looks at property, employees, or sales inside the state. If you cross any of those thresholds in a state that imposes a corporate income tax, you owe that tax regardless of your incorporation state. Many states will also require you to register as a foreign corporation and file a franchise or income tax return for the privilege of doing business there. And each tax has its own nexus triggers, so not collecting sales tax in a state does not exempt you from its income or franchise tax.
The no-tax-state advantage is genuine only when your business operations are genuinely concentrated in that state. If you have a warehouse in Texas, employees in Washington, and customers nationwide, you will owe something to multiple states. Incorporating in Wyoming on top of all that just adds one more annual report to file.
What Pass-Through Owners Actually Save
S-corporations, LLCs, and partnerships are generally not taxed at the entity level. Income passes through to the owners, who report it on their personal returns.9Office of the Law Revision Counsel. 26 USC 1366 – Pass-Thru of Items to Shareholders Whether this actually saves state income tax depends on where the owners live.
Eight states impose no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming.2Tax Foundation. State Individual Income Tax Rates and Brackets, 2026 A Wyoming LLC whose owners also live in Wyoming pays zero state-level income tax on either side. A Wyoming LLC whose owners live in California will see those profits taxed on the owners’ California returns. For personal income tax, the entity’s home state is irrelevant; what matters is the owner’s state of residence.
Florida shows a useful wrinkle. It has no personal income tax but does impose a corporate income tax on C-corporations and on LLCs classified as corporations for tax purposes.10Florida Department of Revenue. Corporate Income Tax The Florida Legislature specifically intended that LLCs classified as partnerships for federal tax purposes not be subject to the corporate tax.11The Florida Legislature. Florida Code 220.02 – Legislative Intent Structuring a Florida business as a pass-through rather than a C-corporation avoids both the state corporate tax and the state personal income tax.
What You Still Have to File and Pay
Skipping corporate income tax does not skip administrative filings. Every state requires corporations and LLCs to maintain good standing with the Secretary of State, and failure to do so can result in administrative dissolution, meaning the state cancels your business entity.
Annual Reports and Fees
Most states require an annual or biennial report updating the state on current officers, directors, and business address. Fees vary. South Dakota corporations file electronically for $55.12South Dakota Secretary of State. Filing Fees Wyoming’s base fee is $60 for entities with $300,000 or less in Wyoming assets, scaling up from there. Missing deadlines triggers late fees that vary from around $50 to over $250, with Florida charging $400 for a late annual report. Prolonged noncompliance leads to administrative dissolution, which strips your limited liability protection and your legal right to conduct business or file lawsuits. Reinstatement fees and back penalties then pile on.
Registered Agent
Every state requires a corporation or LLC to keep a registered agent with a physical address in the state to accept legal documents and government correspondence. If you don’t live where you incorporated, you need a professional registered agent service, typically $99 to $299 per year, with most in the $125 to $150 range. Some formation companies offer the first year free and raise the price sharply at renewal.
“No Tax Due” Returns
In several no-income-tax states, you still have to file a return confirming you owe nothing. Texas is the clearest example: businesses below the $2,650,000 revenue threshold must still file a no-tax-due franchise tax report.6Texas Comptroller of Public Accounts. Franchise Tax Rates, Thresholds and Deduction Limits Failing to file, even when you owe zero, brings penalties and loss of good standing.
Other Taxes That Do Not Go Away
The absence of a corporate income tax does not mean the absence of taxation. Several layers stay in place:
- Sales and use tax. Wyoming charges 4 percent statewide, and local jurisdictions add more. Texas allows combined state and local sales taxes up to 8.25 percent. Collection, reporting, and remittance often outweigh the paperwork of an income tax return.3Wyoming Legislature. Revenue13Texas Comptroller of Public Accounts. City Sales and Use Tax
- Property tax. Both Wyoming and South Dakota lean heavily on property tax to fund local government and schools, and any business that owns real estate or significant equipment will feel it.
- Payroll and unemployment taxes. Every state requires employers to pay state unemployment insurance, and these apply in no-income-tax states just as they do elsewhere.
- Local business taxes. Cities and counties inside no-income-tax states sometimes add their own levies and license fees.
The total tax bill in a state with no corporate income tax can end up close to what you would pay in a state with a modest income tax, depending on industry, property holdings, and sales volume. The savings are real for profitable businesses with light physical footprints. They are not automatic for anyone else.