The 9 States With No Income Tax: What Small Business Owners Need to Know
Last updated: 2026-03-27
Summary:Nine states charge no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. This means sole proprietors, LLC members, S-Corp shareholders, and freelancers in these states keep more of their earnings. But "no income tax" does not mean "no taxes." Washington levies a B&O tax on gross receipts. Texas has a franchise tax on larger businesses. Tennessee imposes a franchise and excise tax. New Hampshire has a Business Profits Tax that effectively taxes business income at 7.5%. Property taxes in Texas and New Hampshire are among the highest in the nation. For pass-through business owners, Florida, Wyoming, South Dakota, and Nevada offer the lowest overall state tax burden.
Which states have no income tax?
As of 2026, nine states impose no personal income tax on earned income. This list has grown in recent years — Tennessee fully repealed its Hall Tax on investment income in 2021, and New Hampshire completed the phase-out of its interest and dividends tax in 2025.
Alaska (AK)
Florida (FL)
Nevada (NV)
New Hampshire (NH)
South Dakota (SD)
Tennessee (TN)
Texas (TX)
Washington (WA)
Wyoming (WY)
For small business owners who operate as sole proprietors, single-member LLCs, partnerships, or S-Corps, business income passes through to your personal return. In these nine states, that pass-through income is not subject to state income tax. This is a significant advantage, especially for high earners.
However, this benefit only applies to income earned within these states. If you live in Florida but earn income from clients in California, you may still owe California income tax on that California-sourced income.
What does "no income tax" actually mean for your business?
"No income tax" means the state does not levy a tax on personal earned income or, in most cases, on pass-through business income. But every state needs revenue, and these nine states make up for the missing income tax with other levies:
- •Higher sales taxes: Tennessee (combined rates up to 9.75%) and Washington (combined rates up to 10.6%) have some of the highest sales tax rates in the country.
- •Higher property taxes: Texas and New Hampshire have some of the highest effective property tax rates nationally, which affects both homeowners and businesses with physical locations.
- •Gross receipts or margin taxes:Washington's B&O tax, Nevada's Commerce Tax, and Texas's franchise (margin) tax are levied on revenue rather than profit, which can be more burdensome for low-margin businesses.
- •Business-specific taxes:Tennessee's franchise and excise tax, New Hampshire's Business Profits Tax, and Florida's corporate income tax all target business income through alternative structures.
- •Natural resource taxes: Alaska funds its state government primarily through oil and gas production taxes and federal land revenue, and even pays residents an annual Permanent Fund Dividend (PFD).
What alternative taxes does each state charge?
Alaska (AK)
Florida (FL)
Nevada (NV)
New Hampshire (NH)
South Dakota (SD)
Tennessee (TN)
Texas (TX)
Washington (WA)
Wyoming (WY)
How do the 9 no-income-tax states compare?
| State | Income Tax | Sales Tax | Property Tax | Key Business Tax | Small Biz Rating |
|---|---|---|---|---|---|
| Alaska | None | None (state) | Low | None for most | Good (small market) |
| Florida | None | 6% + local | Moderate | 5.5% corp tax (C-Corps only) | Excellent |
| Nevada | None | 6.85% + local | Low | Commerce Tax (>$4M) | Excellent |
| New Hampshire | None | None | High | BPT: 7.5% on business income | Mixed |
| South Dakota | None | 4.5% + local | Low-Moderate | None | Excellent |
| Tennessee | None | 7% + local (high) | Low | Franchise & excise tax | Good |
| Texas | None | 6.25% + local | High | Franchise tax (>$2.65M rev.) | Excellent |
| Washington | None* | 6.5% + local (high) | Moderate | B&O tax on gross receipts | Good (tech-heavy) |
| Wyoming | None | 4% + local | Low | None | Excellent (lowest tax burden) |
*Washington imposes a 7% capital gains tax on gains exceeding $270,000 (upheld by state Supreme Court in 2023, classified as an excise tax, not an income tax).
What alternative taxes do these states impose on businesses?
Washington: Business & Occupation (B&O) Tax
Washington's B&O tax is levied on gross receipts, not profit. You cannot deduct expenses, cost of goods sold, or losses. This makes it particularly burdensome for low-margin businesses like retail, manufacturing, and food service. A business with $1M in revenue and only $50K in profit pays B&O tax on the full $1M. Rates vary by activity: retailing (0.471%), manufacturing (0.484%), wholesaling (0.484%), and services (1.5% base rate; 1.75% for businesses with $5M+ in services income; 2.1% for the largest service businesses). Starting January 1, 2026, a 0.5% surcharge applies to businesses with over $250 million in annual taxable income (expires 2029). Small businesses with less than $28,000 per year in gross income are generally exempt from the B&O tax filing requirement.
Texas: Franchise (Margin) Tax
Texas levies a franchise tax on businesses with total revenue exceeding $2.65 million (2026 no-tax-due threshold). The tax rate is 0.375% for retail and wholesale businesses and 0.75% for all others, calculated on your "taxable margin" (revenue minus the greater of: cost of goods sold, total compensation, 30% of total revenue, or $1 million). An EZ computation rate of 0.331% is available for qualifying entities that elect the simplified calculation method. Most small businesses with revenue under $2.65M owe zero franchise tax. Effective for reports due on or after January 1, 2024, entities below the no-tax-due threshold no longer need to file a No Tax Due Report, but must still file a Public Information Report (PIR) or Ownership Information Report (OIR). Sole proprietorships and general partnerships that are not LLPs are exempt from filing.
Nevada: Commerce Tax and Modified Business Tax
Nevada's Commerce Tax applies to businesses with Nevada gross revenue exceeding $4 million. Rates vary by industry classification from 0.051% (mining) to 0.331% (rail transportation), with most service businesses paying 0.199% and retailers paying 0.111%. Most small businesses fall well below the $4M threshold and owe nothing. The Modified Business Tax (MBT) applies to businesses with employees: 1.387% on quarterly taxable wages above $50,000. Commerce Tax paid can be credited against MBT liability. This is essentially a payroll tax on the employer.
New Hampshire: Business Profits Tax (BPT) and Business Enterprise Tax (BET)
New Hampshire is the outlier among no-income-tax states because its Business Profits Tax effectively functions as a business income tax. The BPT rate is 7.5% on net business income over $92,000. The BET is 0.55% on the enterprise value tax base (sum of compensation, interest, and dividends paid). BET payments can be credited against BPT liability. In practice, many small businesses in New Hampshire pay a combined effective rate that is comparable to states with a moderate income tax.
Tennessee: Franchise and Excise Tax
Tennessee imposes a 6.5% excise tax on net earnings (similar to a corporate income tax) and a 0.25% franchise tax on the greater of net worth or the book value of real and tangible property owned or used in Tennessee (minimum $100). Most business entities are subject to these taxes, including LLCs, corporations, and partnerships. Sole proprietorships are exempt. A single-member LLC may be treated as a sole proprietorship for state purposes if it does not elect corporate taxation.
Florida: Corporate Income Tax
Florida imposes a 5.5% corporate income tax, but this only applies to C-Corporations. Pass-through entities (sole proprietorships, LLCs, S-Corps, and partnerships) do not pay the Florida corporate income tax. Since most small businesses are structured as pass-through entities, most small businesses in Florida pay zero state income tax on their business profits. This makes Florida one of the most tax-friendly states for small business owners.
Is it worth relocating your business to a no-income-tax state?
For some business owners, relocating makes significant financial sense. For others, it is not worth the disruption. Here is a framework for evaluating:
When relocating IS likely worth it
- ✓You are a high-earning pass-through business owner ($200K+) currently in a high-tax state (CA, NY, NJ, OR, MN)
- ✓Your business is fully remote or location-independent (consulting, freelancing, SaaS, e-commerce)
- ✓You are already considering a move for personal or lifestyle reasons
- ✓Your annual state income tax savings exceed $15,000-$20,000 (enough to offset the cost and hassle of relocating)
When relocating is NOT worth it
- ✗Your business depends on a local customer base or physical presence (restaurants, retail, real estate)
- ✗Your income is modest and the tax savings are minimal ($5,000/year or less)
- ✗You will still earn income sourced from your old state (some states like CA continue to tax income sourced within their borders regardless of where you live)
- ✗The alternative taxes in the new state (property, sales, B&O) offset most of the income tax savings
- ✗Your quality of life, family, or business network would suffer significantly
Example:A freelance software developer earning $250,000 net profit in California pays approximately $22,000 in state income tax (combined 10.3% effective rate including CA SDI). Moving to Florida saves the full $22,000 per year in state income tax, with no alternative business tax on a sole proprietorship. Over 5 years, that is $110,000 in savings. If the developer works remotely and has no California-sourced income after moving, this is a straightforward win — assuming the lifestyle and cost of living changes are acceptable.
Caution:High-tax states like California and New York have aggressive residency audits. Simply forming an LLC in a no-income-tax state while continuing to live and work in a high-tax state does not change your tax obligations. You must genuinely relocate — changing your driver's license, voter registration, medical providers, and spending the majority of your time in the new state — to establish new tax residency. States have successfully clawed back taxes from people who claimed to have moved but maintained significant ties to the original state.
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Frequently Asked Questions
Does no income tax mean no business taxes?
Absolutely not. Every state collects revenue through some combination of taxes. States without an income tax typically rely more heavily on sales taxes, property taxes, or alternative business taxes. Washington's B&O tax is levied on gross receipts (not profit), Texas has a franchise tax on larger businesses, Tennessee has a franchise and excise tax, and New Hampshire has a Business Profits Tax that effectively functions as a business income tax. Only Wyoming and South Dakota come close to having no significant state-level business tax for small businesses.
Which no-income-tax state is best for small businesses?
It depends on your business type. Florida is excellent for service businesses (no state tax on sole props, LLCs, or S-Corps, and a large consumer market). Texas suits businesses needing a large market and workforce (most small businesses are exempt from the franchise tax). Wyoming has the lowest overall tax burden and simplest compliance but has a tiny population. South Dakota is similar to Wyoming with a growing business-friendly reputation. Washington is great for tech but the B&O tax on gross receipts can hurt low-margin businesses.
Will I still owe federal income tax if I move to a no-income-tax state?
Yes. Federal income tax applies to all U.S. citizens and residents regardless of which state you live in. Moving to a no-income-tax state eliminates your state income tax obligation, but your federal tax bill stays the same. Self-employment tax is also a federal tax and is unaffected by your state of residence.
Can I form my LLC in a no-income-tax state but operate elsewhere?
You can, but it usually does not save money. If you form an LLC in Wyoming but operate in California, you must register as a foreign LLC in California and pay California taxes on the income earned there. You would also pay Wyoming's annual fees. In most cases, you end up paying MORE than if you simply formed in your home state. This strategy only saves money if you genuinely live and operate in the no-income-tax state.
What is Washington's B&O tax and why is it unusual?
Washington's Business & Occupation (B&O) tax is a gross receipts tax — it is levied on your total revenue, not your profit. This makes it fundamentally different from an income tax, which only taxes profit after expenses. For a business with $1M in revenue and $900K in expenses, an income tax would only apply to the $100K profit, but the B&O tax applies to the full $1M in revenue. Key 2026 rates: retailing (0.471%), manufacturing (0.484%), wholesaling (0.484%), and services (1.5% base rate, up to 2.1% for high-revenue service businesses). A 0.5% surcharge applies to businesses with over $250 million in annual taxable income (2026-2029). For low-margin businesses, the B&O tax can exceed what they would pay in a state with a traditional income tax.
Is it worth relocating my business to save on state income tax?
It depends on your tax burden, business type, and personal factors. If you are a high-earning service business (consulting, freelancing, SaaS) operating remotely and your current state has a high income tax rate (California at 13.3%, New York at 10.9%, New Jersey at 10.75%), relocating to Florida, Texas, or Wyoming could save $10,000 to $100,000+ per year in state taxes. However, factor in the cost of moving, changes in cost of living, loss of local business network, personal lifestyle preferences, and whether you will still owe taxes to your old state on income earned there. For most small businesses, the decision should not be purely tax-driven.
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This is general information, not tax or legal advice. State tax rates, thresholds, and rules change frequently. Always consult a qualified tax professional for advice specific to your situation. Sources: IRS.gov, Tax Foundation, state revenue department websites, SBA.gov.