Which US states have no income tax?
\nNine states have no state income tax on individuals: Alaska, Florida, Nevada, New Hampshire (interest and dividends only, fully phased out by 2027), South Dakota, Tennessee, Texas, Washington, and Wyoming. However, no income tax does not mean no business taxes.
\n\n
The United States is a federation of 50 states, each with its own tax code, incentive programs, and regulatory environment. This creates an internal competition among states to attract businesses and investment, resulting in dramatically different tax burdens depending on where a company is formed and operates. At one extreme, states like Wyoming and South Dakota impose no income tax, no corporate tax, and minimal fees. At the other, states like California and New Jersey combine high income tax rates, corporate taxes, and extensive regulatory requirements that can add significantly to business costs.
\nFor entrepreneurs choosing where to establish or relocate a business, understanding the full tax picture of each state is essential. A "no income tax" state may impose gross receipts taxes, franchise taxes, or higher property taxes that offset the headline benefit. Conversely, a state with moderate income taxes may offer targeted incentives and credits that dramatically reduce the effective rate for qualifying businesses. The best state for your business depends on your specific situation: entity type, industry, revenue level, employee count, and growth plans.
\nThis guide compares the most business-friendly states for tax purposes, analyzes the advantages and trade-offs of each, and provides practical guidance for choosing the best state for your business.
\nStates with No Individual Income Tax
\nNine states impose no individual income tax, which is a significant advantage for business owners of pass-through entities (LLCs, S-Corps, partnerships, sole proprietorships) whose business income flows to their personal tax returns.
\n| State | \nIndividual Income Tax | \nCorporate Tax | \nOther Business Taxes | \nNotes | \n
|---|---|---|---|---|
| Alaska | \nNone | \n0-9.4% (graduated) | \nNone | \nOnly zero-income-tax state with a corporate income tax | \n
| Florida | \nNone | \n5.5% (on income over $50K) | \nNone | \nNo corporate tax for pass-through entities | \n
| Nevada | \nNone | \nNone | \nCommerce Tax (0.051-0.331% on gross revenue over $4M) | \nModified business tax on payroll | \n
| New Hampshire | \nNone (phased out) | \n7.5% Business Profits Tax | \n0.55% Business Enterprise Tax on enterprise value | \nInterest/dividends tax fully phased out by 2027 | \n
| South Dakota | \nNone | \nNone | \nNone | \nLowest overall business tax burden | \n
| Tennessee | \nNone | \n6.5% (Excise Tax) | \n0.25% franchise tax on net worth | \nCorporate tax still applies | \n
| Texas | \nNone | \nNone | \n0.375-0.75% Franchise/Margin Tax | \nApplies to businesses over $2.47M revenue | \n
| Washington | \nNone | \nNone | \n0.13-3.3% B&O Tax on gross income | \nB&O tax can be substantial for high-revenue, low-margin businesses | \n
| Wyoming | \nNone | \nNone | \nNone | \nLowest overall tax burden; no alternative business taxes | \n
\n\nWhile "no income tax" is an attractive headline, the total tax burden depends on all taxes a business pays. Washington's Business and Occupation (B&O) tax applies to gross income (not profit), which means even unprofitable businesses owe tax on their revenue. A business with $1 million in revenue and zero profit would owe nothing in a state with only an income tax but could owe $1,500 to $33,000 in Washington B&O tax depending on the classification. Similarly, Texas's franchise tax applies to margin (revenue minus cost of goods sold or compensation), which can be significant for service businesses. Always model your specific financial situation against the actual tax structure.
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Deep Dive: Top Business-Friendly States
\nWyoming
\nWyoming consistently ranks as the most business-friendly state for tax purposes and is the top choice for LLC formation.
\n| Advantage | \nDetails | \n
|---|---|
| Income tax | \nNone (individual or corporate) | \n
| Sales tax | \n4% state rate (relatively low) | \n
| LLC filing fee | \n$100 | \n
| Annual report | \n$60 minimum (based on assets in state) | \n
| Privacy | \nMembers not listed in public records | \n
| Asset protection | \nStrongest charging order protection for multi-member LLCs | \n
| Franchise tax | \nNone | \n
| Property tax | \nVery low (assessed at 9.5% of fair market value for commercial) | \n
Wyoming is particularly attractive for online businesses, holding companies, and businesses that can operate from any location. The combination of no income tax, low fees, strong privacy, and excellent asset protection makes it the overall best value for LLC formation.
\nDelaware
\nDelaware is the preferred state for incorporation, particularly for venture-backed startups, but its advantages are more nuanced than commonly understood.
\n| Advantage | \nDetails | \n
|---|---|
| Court of Chancery | \nSpecialized business court with judge (not jury) decisions | \n
| Corporate law | \nMost developed body of corporate law and precedent in the US | \n
| No state income tax on out-of-state revenue | \nOnly taxes income derived from Delaware operations | \n
| Investor familiarity | \nStandard for VC-backed companies | \n
| Privacy | \nOfficers and directors not listed in formation documents | \n
| Flexibility | \nHighly flexible corporate statute (DGCL) | \n
| Disadvantage | \nDetails | \n
|---|---|
| Franchise tax | \n$300/year (LLC), $175-$200,000/year (corporation, depending on structure) | \n
| Foreign qualification | \nRequired if operating in another state | \n
| No income tax advantage for in-state operations | \n8.7% corporate tax on Delaware-source income | \n
\n\nDelaware makes the most sense for: (1) C-Corporations seeking venture capital, (2) companies planning to go public, (3) holding companies that do not operate in Delaware, and (4) companies that need the predictability of Delaware corporate law. It does NOT make sense for most small businesses that operate in a single state. If you run a local business in Texas, forming in Delaware adds the cost of a Delaware registered agent, Delaware franchise tax, and Texas foreign qualification fees without providing meaningful benefits. The most common mistake in business formation is defaulting to Delaware when your home state would serve you better and cheaper.
\n
Nevada
\nNevada markets itself aggressively as a business-friendly state, but the actual advantages are more limited than the marketing suggests.
\n| Feature | \nDetails | \n
|---|---|
| Individual income tax | \nNone | \n
| Corporate income tax | \nNone | \n
| Commerce tax | \n0.051-0.331% on gross revenue over $4 million | \n
| Modified business tax | \n1.378% on quarterly wages over $62,500 | \n
| Filing fee | \n$75 + $150 business license + $200 initial list of officers | \n
| Annual fees | \n$150 annual list + business license renewal | \n
| Privacy | \nOfficers listed in public records (unlike Delaware) | \n
Nevada's true advantages are limited to: no income tax (same as several other states), no information sharing with the IRS (this is often overstated - federal reporting requirements still apply), and strong asset protection statutes.
\nFlorida
\nFlorida has become one of the most popular states for business relocation due to its combination of no individual income tax, large domestic market, and quality of life factors.
\n| Feature | \nDetails | \n
|---|---|
| Individual income tax | \nNone (constitutionally prohibited) | \n
| Corporate income tax | \n5.5% on income over $50,000 | \n
| Sales tax | \n6% state rate + up to 2.5% local | \n
| LLC filing fee | \n$125 | \n
| Annual report | \n$138.75 | \n
| Market access | \n22+ million residents, major international business hub | \n
Florida's corporate income tax only applies to C-Corporations, not pass-through entities. For LLC and S-Corp owners, Florida combines zero income tax with access to a large consumer market and extensive banking and professional services infrastructure.
\nTexas
\nTexas is the second-largest state economy and offers no individual income tax, but its franchise (margin) tax affects larger businesses.
\n| Feature | \nDetails | \n
|---|---|
| Individual income tax | \nNone | \n
| Corporate income tax | \nNone | \n
| Franchise/margin tax | \n0.375% (wholesale/retail) or 0.75% (other) on margin | \n
| No tax threshold | \nBusinesses under ~$2.47M in total revenue owe nothing | \n
| Sales tax | \n6.25% state + up to 2% local | \n
| Filing fee | \n$300 | \n
For businesses under the franchise tax threshold (approximately $2.47 million in total revenue), Texas effectively has no business taxes of any kind beyond sales tax. This makes it an excellent choice for small and mid-size businesses.
\nState Tax Incentive Programs
\nBeyond base tax rates, many states offer targeted incentive programs that can significantly reduce effective tax rates:
\nJob Creation Incentives
\n| State | \nProgram | \nBenefit | \n
|---|---|---|
| Georgia | \nJob Tax Credit | \n$750-$4,000 per job per year for 5 years | \n
| Texas | \nTexas Enterprise Fund | \nDiscretionary grants for significant job creators | \n
| New York | \nExcelsior Jobs Program | \nTax credits up to 6.85% of wages for 10 years | \n
| Ohio | \nOhio Job Creation Tax Credit | \nIncome tax credit based on payroll of new jobs | \n
| Virginia | \nVirginia Jobs Investment Program | \nCash grants for training costs | \n
Research and Development Credits
\nMany states offer R&D tax credits that stack with the federal R&D credit:
\n| State | \nR&D Credit Rate | \nNotes | \n
|---|---|---|
| California | \n24% of excess qualified expenses | \nNo sunset; largest state R&D credit | \n
| Massachusetts | \n10% of qualified expenses | \nPlus additional credits for startups | \n
| Connecticut | \n20% of qualified expenses | \nOne of the highest rates | \n
| Pennsylvania | \n10% of qualified expenses | \nAvailable to companies with fewer than 250 employees | \n
| Arizona | \n24% of first $2.5M, 15% above | \nVery generous for smaller businesses | \n
Capital Investment Incentives
\n| State | \nProgram | \nBenefit | \n
|---|---|---|
| Mississippi | \nAdvantage Jobs Program | \nCash rebate of up to 10% of total payroll | \n
| Louisiana | \nIndustrial Tax Exemption Program | \nUp to 80% property tax abatement for 10 years | \n
| Indiana | \nEconomic Development for a Growing Economy (EDGE) | \nPayroll tax credits | \n
| South Carolina | \nJob Development Credits | \nPayroll tax rebates up to 5% for 10-15 years | \n
\n\nState incentive programs are often negotiable, especially for large projects. If your business is planning a significant expansion, facility construction, or major hiring initiative, contact the state's economic development agency before making location decisions. Many states will offer customized incentive packages that go beyond published programs. The competition among states for major business investments is fierce, and companies with significant job creation or investment plans have substantial negotiating leverage.
\n
Choosing the Best State for Your Business
\nDecision Framework
\n| If Your Priority Is... | \nBest States | \n
|---|---|
| Lowest overall tax burden (individual) | \nWyoming, South Dakota, Florida, Texas | \n
| Venture capital / startup ecosystem | \nDelaware (incorporation), California (operations) | \n
| E-commerce / online business | \nWyoming, South Dakota, Florida | \n
| Manufacturing | \nTexas, Georgia, South Carolina, Tennessee | \n
| Financial services | \nDelaware, South Dakota, Nevada | \n
| Large consumer market access | \nTexas, Florida, California, New York | \n
| Privacy / asset protection | \nWyoming, Nevada | \n
| Lowest formation costs | \nKentucky ($40), Colorado ($50), Wyoming ($100) | \n
Common Mistakes
\n- \n
Forming out of state without understanding foreign qualification costs: If you operate in California, you pay California taxes regardless of where your entity is formed.
\n \nFocusing only on income tax: Property taxes, sales taxes, gross receipts taxes, and franchise taxes can collectively exceed income taxes for many businesses.
\n \nIgnoring the cost of living: A state with no income tax but high cost of living (Florida, Washington) may cost more overall than a moderate-tax state with lower living costs.
\n \nNot considering the full lifecycle: Tax rates, incentive programs, and business environments change over time. Choose a state based on fundamental strengths, not temporary programs.
\n \nOverlooking local taxes: Cities and counties within a state can have very different tax environments. Austin, Texas has different local conditions than rural West Texas.
\n \n
For comprehensive information on formation costs by state, see our cost of starting a business guide. For details on federal and state corporate tax rates, see our corporate tax guide. For information on other investment incentive programs, see our guides on Opportunity Zones and SBA loans and grants.
\nEntrepreneurs comparing US state incentives with incentives in other countries should review our guides on UAE/Dubai free zones, UK enterprise zones, Singapore tax incentives, and Estonia's e-Residency program.
\nNo-Income-Tax States: Full Profile
\nThe Kalenux Team frequently advises clients considering relocation to no-income-tax states. The headline benefit must be weighed against other state-level taxes that can offset the apparent savings.
\n| State | \nState Income Tax | \nCorporate Tax | \nState Sales Tax | \nProperty Tax Rank (50=lowest) | \nOther Taxes | \n
|---|---|---|---|---|---|
| Alaska | \n0% | \n2.0%-9.4% graduated | \n0% (local up to 7%) | \n24th | \nPetroleum production tax | \n
| Florida | \n0% | \n5.5% | \n6.0% | \n30th | \nDocumentary stamp tax | \n
| Nevada | \n0% | \n0% (commerce tax on >$4M) | \n6.85% | \n45th | \nModified business tax | \n
| New Hampshire | \n0% on wages (5% interest/dividend phasing out) | \n7.5% BPT + 0.55% BET | \n0% | \n1st (high) | \nBET on all businesses | \n
| South Dakota | \n0% | \n0% | \n4.5% | \n40th | \nNo corporate or personal | \n
| Tennessee | \n0% | \n6.5% excise + franchise | \n7.0% | \n37th | \nHall tax repealed 2021 | \n
| Texas | \n0% | \n0% (margin tax on >$2.47M) | \n6.25% | \n13th (high) | \nMargin tax up to 0.75% | \n
| Washington | \n0% | \n0% (B&O on gross receipts) | \n6.5% | \n28th | \nB&O 0.471-1.5% | \n
| Wyoming | \n0% | \n0% | \n4.0% | \n50th (lowest) | \nNo corporate or personal | \n
Key R&D Tax Credit States
\nOur business formation team helps R&D-intensive clients select locations where state R&D credits stack with federal Section 41 credits.
\n| State | \nR&D Credit | \nRefundability | \nCarry-Forward | \n
|---|---|---|---|
| California | \n15% of QRE above base + 24% for university research | \nNon-refundable | \nIndefinite | \n
| New York | \nExcelsior Jobs R&D 3-6% | \nRefundable (partial) | \nVaries | \n
| Massachusetts | \n10-15% of QRE | \nPartially refundable | \n15 years | \n
| Texas | \nFranchise tax credit 5% of excess QRE | \nNon-refundable | \n20 years | \n
| North Carolina | \nVarious R&D programs | \nVaries | \nVaries | \n
| Arizona | \n24% of first $2.5M excess QRE + 15% above | \nPartial refund for under 150 employees | \n15 years | \n
| Colorado | \n3% of excess QRE | \nNon-refundable | \n4 years | \n
| Connecticut | \n20% of incremental QRE | \nNon-refundable | \n15 years | \n
| New Jersey | \n10% of excess QRE | \nNon-refundable | \n7 years | \n
| Virginia | \n15% of first $300k of QRE + 20% additional | \nRefundable up to $1M | \n10 years | \n
\n\nAccording to the Tax Foundation's 2024 State Business Tax Climate Index, the ten most competitive states for business taxation are Wyoming, South Dakota, Alaska, Florida, Montana, New Hampshire, Utah, Indiana, Nevada, and Texas, while the ten least competitive are New Jersey, New York, California, Connecticut, Maryland, Minnesota, Vermont, Hawaii, Massachusetts, and Oregon [5].
\n
Enterprise Zone and Opportunity Incentives
\nMany states designate Enterprise Zones with layered benefits for businesses investing in designated areas:
\n- \n
- Colorado Enterprise Zones: Investment tax credit up to 3%, job training tax credits, double-weighted sales-factor apportionment relief. \n
- California Enterprise Zones (repealed 2014; New Employment Credit replaced): Hiring credit up to $3.6M per employee over 5 years. \n
- Texas Enterprise Zone Program: Sales and use tax refunds of up to $7,500 per job, capped at $1.25M per enterprise project. \n
- Louisiana Enterprise Zone: Income and franchise tax credit of $3,500 per net new job, plus sales/use tax rebate. \n
- Illinois Enterprise Zone: Investment tax credits, property tax abatement, sales tax exemption on building materials. \n
Film and Digital Media Incentives
\nSeveral states offer film and digital production tax credits ranging from 10% to 40% of qualified spend. Our business formation team has advised clients on structuring productions across state lines to optimise credits.
\n| State | \nIncentive Level | \nNotes | \n
|---|---|---|
| Georgia | \n30% transferable tax credit | \nMost active film state outside California | \n
| Louisiana | \n25-40% tax credit | \nPlus 15% resident labour uplift | \n
| New Mexico | \n25-35% tax credit | \nRefundable | \n
| New York | \n30% refundable tax credit | \nAdditional 10% for labour in specific upstate counties | \n
| California | \n20-25% non-refundable | \nCompetitive allocation system | \n
| North Carolina | \n25% grant | \nCap on total annual grants | \n
Related Corpy Resources
\n- \n
- United States business guide for a full overview of doing business in United States \n
- Free zones in United States for related articles on this topic \n
- Company formation in United States to explore adjacent considerations \n
- Corporate tax in United States to explore adjacent considerations \n
- Business laws in United States to explore adjacent considerations \n
How to dissolve a company in New Jersey?
\nNew Jersey LLC dissolution requires filing a Certificate of Cancellation with the NJ Division of Revenue for $100, preceded by obtaining a tax clearance certificate from the NJ Division of Taxation (free but takes 6 to 12 weeks). For NJ C-Corps, the filing is a Certificate of Dissolution ($95) plus the same tax clearance. Steps: settle all state taxes (corporation business tax, sales tax, employer withholding), obtain tax clearance, notify creditors and distribute remaining assets, file the dissolution form, and close the NJ bank account. Total timeline: 3 to 6 months including tax clearance. NJ is notably stricter than zero-tax states like Wyoming (dissolution $60) and Nevada (dissolution $100) because of the mandatory tax clearance step. Founders choosing NJ for nexus reasons should budget for the slower wind-down. Delaware LLC cancellation is easier at $200 and 1 to 4 weeks, which is why most non-resident founders form in Delaware rather than NJ.
\n\nHow to dissolve a company in Washington state?
\nWashington LLC dissolution requires filing a Certificate of Dissolution with the WA Secretary of State for $20 online, preceded by obtaining a revenue clearance certificate from the WA Department of Revenue (free, 4 to 8 weeks). For WA C-Corps, the filing is the same $20 dissolution plus tax clearance. Steps: settle all WA state Business & Occupation tax obligations, file final B&O returns, obtain revenue clearance, notify creditors and distribute assets, file the Certificate of Dissolution, and close accounts. Total timeline: 2 to 4 months. Washington is among the cheapest and simplest US dissolution states - no mandatory newspaper publication like New York ($200 to $2,000), no tax clearance delay like New Jersey (6 to 12 weeks). For founders choosing between WA and low-tax incentive states like Nevada ($100 dissolution, no state income tax) or South Dakota ($10 annual report), WA remains a solid operational home with clean exit mechanics.
\nReferences
\n- \n
- US Foreign-Trade Zones Board. https://www.trade.gov/us-foreign-trade-zones \n
- US Customs and Border Protection FTZ. https://www.cbp.gov/trade/programs-administration/foreign-trade-zones \n
- OECD Inclusive Framework on BEPS. https://www.oecd.org/tax/beps/ \n
- World Bank Doing Business Archive. https://archive.doingbusiness.org/ \n
- Tax Foundation, State Business Tax Climate Index. https://taxfoundation.org/research/all/state/state-business-tax-climate-index/ \n
- Council on State Taxation (COST). https://www.cost.org/ \n
- State Economic Development Incentives Database. https://www.incentivesdatabase.com/ \n
Frequently Asked Questions
Which US states have no income tax?
Nine states have no state income tax on individuals: Alaska, Florida, Nevada, New Hampshire (interest and dividends only, fully phased out by 2027), South Dakota, Tennessee, Texas, Washington, and Wyoming. However, no income tax does not mean no business taxes. Washington has a Business and Occupation (B&O) tax, Texas has a franchise/margin tax, and Nevada has a commerce tax for businesses with gross revenue over $4 million.
Why is Delaware popular for incorporation?
Delaware is popular because of its Court of Chancery (a specialized business court with judges rather than juries), well-established corporate law with extensive case precedents, privacy (no requirement to list officers or directors in formation documents), no state income tax on out-of-state revenue, and familiarity among investors and attorneys. About 68% of Fortune 500 companies are incorporated in Delaware.
What makes Wyoming attractive for LLCs?
Wyoming was the first state to create the LLC structure and remains one of the best for LLC formation. Benefits include no state income tax, low formation and annual fees (\(100 filing, \)60 annual report), strong asset protection and charging order protections, lifetime proxy provisions, no requirement to disclose member names publicly, and no franchise tax. Wyoming is often considered the best overall value for single-member LLCs.
Should I form my company in a tax-friendly state even if I operate elsewhere?
Generally no, unless you have specific reasons. If you form in Delaware or Wyoming but operate in California, you will need to foreign-qualify in California and pay California taxes on income earned there. You would end up paying fees in both states. Forming out of state makes sense primarily for companies seeking venture capital (Delaware C-Corp), holding companies, or businesses that operate in multiple states without a primary physical location.
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