Key Takeaways

  • Nine U.S. states do not levy a corporate income tax, offering potential tax savings for businesses.
  • Two states — Alaska and New Hampshire — have neither a state-level sales tax nor an individual income tax.
  • States that do not collect corporate income tax often rely on alternative revenue sources, such as high property taxes, excise taxes, and resource extraction fees.
  • Some low-tax states may still impose gross receipts taxes or franchise taxes in place of corporate income taxes.
  • Delaware and Nevada are particularly attractive to businesses due to their favorable regulatory climates despite certain other tax types.

There are states with no business tax. Seven states have no income tax, two others have very low income tax, and five have no sales tax. Several of the states treat only some items as tax-exempt, and there are two states that have neither income tax nor sales tax.

Ways to Recoup Revenue From Lost Tax Income

The local governments in these states have other ways to make up the revenue they aren't making from income and sales tax. These other ways to adjust for lost revenue include higher property taxes and increasing either income tax or sales tax. Local governments might also charge more for other services they provide. Local jurisdictions are also able to set their own sales tax rates to recoup money from local shoppers.

Alaska

Alaska doesn't charge sales tax or income tax. Alaska, also known as "The Last Frontier," is one of only two states in the United States that has neither income tax nor sales tax. Some communities in Alaska do, however, charge sales tax on a local level.

New Hampshire

New Hampshire, also known as "the Granite State," is the second state that has neither income tax nor sales tax. The state does, however, make residents file tax returns if they earn interest or dividend income above $2,400 for single filers and above $4,800 for married couples who file jointly. The loss of revenue from income and sales tax is recouped by some of the nation's highest property tax rates.

Other States With No Income Tax

Other states with no income tax include:

  • Florida, which is also called "the Sunshine State," hasn't charged residents income tax since repealing it in 1855. The state does, however, charge property tax and a sales tax of 6 percent.
  • Nevada, home to Las Vegas and also called "the Silver State," doesn't ask residents to pay any personal income tax. This business-friendly state also doesn't charge corporate tax, franchise tax, or inventory tax. The state does charge sales tax at a rate of 6.85 percent, and it collects fees associated with the Las Vegas casinos.
  • South Dakota doesn't tax the income of individuals or corporations. The state claims 4 percent revenue from sales tax and other use taxes, plus its economy is heavily rooted in farming and the tourism industry.
  • Tennessee doesn't charge income tax, but it does charge what it calls "hall tax." Hall tax is imposed on interest and dividend income, though it's slated to end by 2022. Tennessee also charges sales tax at a rate of 7 percent.
  • Texas, also called "the Lone Star State," doesn't charge tax on income. The state's revenue comes from its 6.25 percent sales tax and royalties it gets from the oil and natural gas industries.
  • Washington charges sales tax at 6.5 percent but has no income tax. Local jurisdictions are also allowed to add as much as 3 percent on top of the sales tax. No corporate tax is charged within the state of Washington, but as in Delaware, there is a gross receipts tax imposed.
  • Wyoming is funded largely through natural resources taxes and property taxes but imposes no income tax. A 4 percent sales tax is also charged in Wyoming.

States With No Corporate Income Tax

Several states do not levy a corporate income tax, making them attractive options for businesses seeking to reduce their tax burden. As of 2024, the states with no corporate income tax are:

  • South Dakota – No corporate or individual income tax. The state relies on sales tax (4.2%) and excise taxes.
  • Wyoming – No corporate income tax and no individual income tax. Revenue comes from severance taxes on natural resource extraction and property taxes.
  • Nevada – No corporate income tax and no franchise tax. Businesses may be subject to the commerce tax, a gross receipts tax for those with over $4 million in revenue.
  • Washington – No corporate or individual income tax, but it does impose a business and occupation (B&O) tax, which is a gross receipts tax applied to businesses.
  • Texas – No corporate income tax, but the state imposes a franchise tax known as the margin tax on gross receipts over a certain threshold.
  • Ohio – Eliminated its corporate income tax and replaced it with the Commercial Activity Tax (CAT), a gross receipts tax.
  • Alaska – While it does impose a corporate income tax on C corporations, Alaska does not tax individual income or impose a statewide sales tax. However, because it appears in both tax-exempt categories (no individual income or sales tax), it remains a special case.
  • Florida – While Florida has no individual income tax, it does levy a flat 5.5% corporate income tax on businesses, which excludes it from the no-corporate-tax list.
  • New Hampshire – Despite having no sales tax and no general individual income tax, it does impose two types of business taxes: the Business Profits Tax (BPT) and the Business Enterprise Tax (BET).

These states generally compensate for the lack of corporate income tax through other mechanisms such as high property taxes, excise taxes, or industry-specific levies. This strategy helps maintain public funding without placing a direct income tax burden on businesses.

Delaware

In Delaware, no sales tax is added to purchases at either the state or local level. This is done to encourage people from other states to shop there. The state does, however, have one of the 20 highest income tax rates in the United States. The state also relies on corporate income tax to cover the income lost from not imposing a sales tax.

Business-Friendly States With Low or No Corporate Taxes

States with favorable business tax environments aren’t always the ones with the lowest rates. Some states strike a balance by combining low corporate tax rates with efficient legal systems and incentives:

  • Delaware – While Delaware does impose a corporate income tax of 8.7%, it does not charge sales tax and has a fast, business-friendly Chancery Court system that handles corporate legal matters efficiently. Many large businesses incorporate here due to the predictability and clarity of its corporate law.
  • Nevada – In addition to having no corporate income tax, Nevada also avoids franchise and inventory taxes. Its pro-business regulatory environment and privacy protections for business owners make it a popular choice for incorporation.
  • Wyoming – Known for business-friendly policies and minimal red tape, Wyoming imposes no corporate income tax, making it a common choice for startups and holding companies.

Choosing a business-friendly state may depend on more than just taxes. Consider incorporation costs, legal infrastructure, and privacy laws in addition to tax policy.

The Remaining States With Income Tax

The remaining 41 states in the U.S. charge either a flat tax, where each individual pays income tax at the same rate, or a progressive tax that's determined by how much is earned each year. At the federal level, everyone is required to pay income tax at a percentage based on the amount earned, which is also called an "income bracket." After filing tax returns, people may get state or federal tax refunds, though state refunds are only possible for residents of states that charge income taxes.

Frequently Asked Questions

1. What states have no corporate income tax?South Dakota, Wyoming, Nevada, Texas, Washington, and Ohio are among the states with no traditional corporate income tax.

2. Does having no corporate income tax mean lower overall business taxes?Not necessarily. These states may impose gross receipts taxes, higher sales or property taxes, or industry-specific fees to generate revenue.

3. Why do businesses incorporate in Delaware if it charges corporate tax?Delaware’s legal framework, including its specialized Chancery Court and business-friendly laws, offers strategic advantages that outweigh its corporate tax rate for many companies.

4. Is it legal to form a business in a no-tax state while operating elsewhere?Yes, but businesses must register as foreign entities in the states where they conduct business and may still be subject to local taxes there.

5. Do these tax advantages apply to all business types?No. Some exemptions apply only to certain structures (e.g., LLCs, S corps) or revenue thresholds. Consulting with a tax advisor or attorney is recommended.

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