What Types of Taxes Do State Governments Collect?

State governments collect several distinct categories of tax, and the types of taxes state governments collect include individual and corporate income taxes, general sales and use taxes, excise taxes on specific goods, property taxes, estate and inheritance taxes, severance taxes on extracted resources, and a range of business-specific fees such as franchise taxes and unemployment insurance contributions.¹ No federal law forces states to tax in the same way, so the mix you actually face depends on where you live, where you work, and what you buy.

Individual Income Taxes

The most visible tax for most people is the state income tax on wages, salaries, and other personal earnings. As of 2026, 41 states and the District of Columbia impose some form of individual income tax. Nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not tax individual income at all and fund their budgets from other sources.¹

Structures differ among the states that do tax income. Fifteen use a flat rate, meaning every taxpayer pays the same percentage regardless of income. The remaining 26 states and D.C. use a graduated system where the rate rises with income. Top marginal rates range from 2.5 percent in Arizona and North Dakota to 13.3 percent in California.¹

Many states reduce what you owe through credits. Earned income credits are available in roughly 31 states, and child and dependent care credits in about 30. Several states also offer their own child tax credits, with amounts and income limits that vary widely. These credits can significantly lower your effective rate, especially at lower income levels.

Sales and Use Taxes

Forty-five states and the District of Columbia impose a general sales tax on purchases of goods and certain services. State-level rates range from 2.9 percent in Colorado to 7.25 percent in California, and local governments in many states add their own percentage on top.² Retailers collect the tax at the register and send it to the state.

If you buy something from an out-of-state seller who does not charge your state’s sales tax, you generally owe a use tax at the same rate. The use tax prevents residents from sidestepping local taxes by shopping across borders or online. Individuals often overlook this obligation, but businesses face close scrutiny on out-of-state purchases during audits.

Since the Supreme Court’s 2018 ruling in South Dakota v. Wayfair, Inc., states can also require remote sellers to collect sales tax based on economic activity in the state, without any physical presence there.³ Every state with a sales tax now enforces some form of economic nexus threshold, most commonly $100,000 in sales or 200 transactions per year. Nearly all also have marketplace facilitator laws that shift collection duties to platforms like Amazon, Etsy, or eBay when third-party sellers use them.

Most states exempt certain necessities to reduce the burden on lower-income households. Groceries, prescription medications, and medical devices are the most frequently exempted categories.² The line between taxable and exempt items can be narrow. A state might exempt unprepared groceries but tax prepared food from the same store’s deli counter.

Excise Taxes on Specific Goods

Beyond the general sales tax, states apply excise taxes to particular products. Excise taxes are often built into the retail price, making them less visible than sales tax at checkout.

Motor fuel. Every state taxes gasoline on a per-gallon basis, with rates from about $0.09 to roughly $0.60 per gallon. Several states add a sales tax percentage on top of the flat rate. Revenue typically funds highway construction and maintenance.⁴
Tobacco. All 50 states and D.C. tax cigarettes. Rates range from $0.17 per pack in Missouri to $4.50 per pack in D.C., with several states above $4.00. Local taxes can push totals higher; in Chicago, combined state and local cigarette taxes exceed $7.00 per pack.⁵
Alcohol. States tax beer, wine, and spirits at varying rates, often with higher rates on distilled spirits than on beer or wine. Some states also generate alcohol revenue through state-run liquor stores.
Lodging and telecommunications. Hotel stays and telecom services carry specialized excise taxes in many states. Hotel tax revenue is frequently earmarked for tourism promotion or convention facilities.

Property Taxes

Property taxes are primarily collected by local governments — counties, municipalities, and school districts — rather than by the state itself. More than half of states also levy some form of state-level property tax, often dedicated to funding public education. The amount you owe is based on the assessed value of your real estate, and local assessors periodically revalue properties to reflect market changes.⁶

Because rates and assessment methods are set locally in most cases, property taxes vary dramatically even within a single state. If you are budgeting for a home purchase, check both the local rate and the state rate for the specific county where you plan to buy.

Estate and Inheritance Taxes

When someone dies, their assets may be subject to transfer taxes at both the federal and state level. The federal estate tax exemption for 2026 is $15,000,000, so most estates owe nothing to the IRS.⁷ State thresholds can be far lower — some begin taxing estates valued at $1 million or more.⁸

The two taxes work differently. An estate tax is calculated on the total value of everything the deceased person owned before anything is distributed to heirs. An inheritance tax is paid by the person receiving the assets. About a dozen states impose an estate tax. A smaller number, including Kentucky, Maryland, New Jersey, and Pennsylvania, impose an inheritance tax. Maryland is the only state that imposes both.⁸

Inheritance tax rates typically depend on the recipient’s relationship to the deceased. Surviving spouses are generally exempt, and direct descendants often pay little or nothing. More distant relatives or unrelated beneficiaries can face rates as high as 16 percent. Late filings or undervalued assets can trigger interest and penalties.

Business Taxes

Businesses face their own layer of state taxation. Forty-four states levy a corporate income tax on the net profits companies earn within their borders. Rates run from a 2 percent flat rate to a top marginal rate of 11.5 percent.⁹ A company operating in more than one state uses an apportionment formula to divide its profits, weighing some combination of in-state sales, property, and payroll.¹⁰

A handful of states take a different approach. Nevada, Ohio, Texas, and Washington impose a gross receipts tax instead of a corporate income tax. Delaware, Oregon, and Tennessee impose a gross receipts tax on top of their corporate income tax. South Dakota and Wyoming levy neither.¹¹ The distinction matters: a corporate income tax applies to net profit, but a gross receipts tax applies to total revenue with no deductions for labor, materials, or other expenses, so a company operating at a loss can still owe it.

Employers must also pay into a state unemployment insurance fund under the State Unemployment Tax Act (SUTA). Contributions finance benefits for workers who lose their jobs through no fault of their own. Employer rates vary based on industry, the company’s layoff history, and the state’s fund balance, generally running from under 1 percent to over 10 percent of each employee’s wages up to a state-set cap. That taxable wage base ranges from $7,000 in some states to over $70,000 in others.

Many states charge a franchise tax or annual report fee simply for the privilege of being organized or doing business there. The charge may be a flat dollar amount or scaled to net worth, revenue, or capital held in the state. Businesses that miss these payments risk losing good standing, which can block them from filing lawsuits, entering contracts, or continuing operations.

States rich in natural resources often impose severance taxes when oil, natural gas, coal, timber, or minerals are extracted for commercial sale. Rates are typically based on volume or market value at the time of removal, and the revenue often funds infrastructure, education, or environmental programs in the producing region.

When You Owe Taxes in a State Where You Don’t Live

You do not have to live in a state to owe it income tax. If you work remotely for a company in another state, travel for business, or earn rental income from out-of-state property, you may have filing obligations there. States generally treat you as a resident for tax purposes if you spend 183 days or more in the state during the year and maintain a home there.¹²

Well below that mark, some states require employers to start withholding tax on your behalf. Thresholds for nonresident withholding range from as few as 14 working days to 60 days in the state, depending on the jurisdiction.¹² If you regularly work across state lines or split time between locations, check whether each state where you perform work has its own filing requirement.

Filing Deadlines, Penalties, and Audits

Most states that impose an income tax set their filing deadline on April 15, aligning with the federal due date. Many grant an automatic extension of time to file, typically six months. An extension to file is not an extension to pay. If you owe tax, you are expected to pay by the original deadline or face interest and penalties on the unpaid balance.

Late-filing penalties typically run around 5 percent of the unpaid tax per month, with most states capping the total at 25 percent. Interest accrues separately until the balance is paid. Businesses that collect sales tax but fail to remit it face especially serious consequences; many states treat that failure as misappropriation of public funds, which can carry criminal penalties.

States generally have three to four years from the date you filed a return (or the return’s due date, whichever is later) to audit you and assess additional tax. That window extends significantly, or disappears entirely, if you substantially understate income or fail to file at all. If you receive a notice of deficiency, you typically have the right to contest it through an administrative hearing before an independent tribunal, with judicial review available if that process does not resolve the dispute.

1
Tax Foundation. State Individual Income Tax Rates and Brackets, 2026
2
Tax Foundation. State and Local Sales Tax Rates, 2026
3
Supreme Court of the United States. South Dakota v. Wayfair, Inc.
4
Federation of Tax Administrators. State Motor Fuel Tax Rates
5
Tax Policy Center. How Do State and Local Cigarette and Vaping Taxes Work
6
Tax Policy Center. How Do State and Local Property Taxes Work
7
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
8
Tax Foundation. State Estate and Inheritance Taxes
9
Tax Foundation. State Corporate Income Tax Rates and Brackets, 2026
10
Federation of Tax Administrators. State Corporate Income Tax Apportionment Formulas
11
Tax Foundation. State Corporate Income Tax Rates and Brackets, 2026
12
National Conference of State Legislatures. State and Local Tax Considerations of Remote Work Arrangements