9 States With No Income Tax in 2026: What Business Owners Need to Know Before Relocating

Published: March 11, 2026 Tax Year: 2026

A Message from Slava

When I moved from the UK to the US to build Jupid, one of the first decisions I faced was: which state? At Anna Money, we served 60,000+ small businesses across the UK, where everyone pays the same national income tax rates regardless of location. In the US, your state choice can change your tax bill by tens of thousands of dollars annually.

Nine states charge zero individual income tax. For a freelancer earning $150,000, the difference between California (top rate 13.3%) and Texas or Florida (0%) is roughly $13,000-$15,000 per year. Over a decade, that is a six-figure difference — enough to fund a retirement account, hire an employee, or reinvest in your business.

But here's what the headlines leave out: no income tax doesn't mean no taxes. Texas has a franchise tax on businesses. Washington recently implemented a tiered capital gains tax up to 9.9%. Florida and Nevada rely on higher sales and property taxes. And if you have clients or income sources in other states, you may still owe income tax to those states even if your home state charges nothing.

This guide covers all nine no-income-tax states, the taxes they do charge, the nexus rules that affect freelancers and remote workers, and what to actually consider before making a move. The goal is to give you the complete picture, not just the headline.

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Executive Summary: States With No Income Tax

The 9 states with no individual income tax in 2026:

Key points:

• New Hampshire fully repealed its Interest & Dividends Tax as of January 1, 2025
• "No income tax" applies to individual income — most of these states tax businesses differently
• State nexus rules mean you may owe income tax to other states where you earn income
• LLC formation state and personal residence state are separate decisions

Federal taxes remain the same regardless of state.

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The 9 No-Income-Tax States: Full Breakdown

1. Alaska

Income tax: None (individual or corporate wages) Sales tax: No state sales tax, but municipalities can levy local sales taxes (typically 1%-7.5%) Property tax: Varies by borough, averaging around 1.19% of assessed value Other business taxes: Corporate income tax of 2%-9.4% on Alaska-sourced corporate income

Best for: Remote workers and sole proprietors who don't operate a corporation. Freelancers with no physical presence in other states benefit the most.

Watch out for: Alaska's corporate income tax applies to C-Corps earning income in Alaska. If you operate a pass-through entity (sole proprietorship, LLC, S-Corp), the corporate tax doesn't apply. The state also has no individual capital gains tax, making it attractive for investors.

Cost of living factor: Alaska has a high cost of living, particularly for goods and housing outside Anchorage. The state distributes an annual Permanent Fund Dividend (PFD) to residents — $1,702 in 2024 — which partially offsets costs.

2. Florida

Income tax: None Sales tax: 6% state + up to 2% local (effective rates often 7%-7.5%) Property tax: Average effective rate around 0.86% Other business taxes: 5.5% corporate income tax on C-Corp income over $50,000. No corporate tax on pass-through entities.

Best for: Self-employed individuals, freelancers, and LLC owners. Florida is the most popular no-income-tax state for business relocation, with a large entrepreneurial ecosystem, particularly in Miami, Tampa, and Orlando.

Watch out for: Florida's homestead exemption provides significant property tax savings for primary residences (up to $50,000 exempt). But rental properties and investment real estate get no such benefit. Insurance costs (particularly homeowner's and flood insurance) can be substantial.

LLC formation: Florida charges an annual LLC report fee of $138.75. Many business owners form their LLC in Florida even if they live elsewhere, but your operating state still matters for tax nexus purposes.

3. Nevada

Income tax: None Sales tax: 6.85% state + up to 1.53% local Property tax: Average effective rate around 0.55% (among the lowest nationally) Other business taxes: Commerce Tax on businesses with Nevada gross revenue exceeding $4 million (rates vary by industry, 0.051%-0.331%). Modified Business Tax on employer wages.

Best for: Small business owners under $4M in revenue who want low overall tax burden. Nevada combines no income tax with low property taxes and no franchise tax for small businesses.

Watch out for: Nevada's Commerce Tax only affects larger businesses, so most freelancers and solopreneurs won't encounter it. The state does have a Modified Business Tax (MBT) for employers — 1.378% on quarterly wages exceeding $50,000 — which matters if you hire employees.

4. New Hampshire

Income tax: None (fully repealed as of January 1, 2025) Sales tax: None Property tax: One of the highest in the nation, averaging around 1.86% Other business taxes: Business Profits Tax (BPT) at 7.5% on business income; Business Enterprise Tax (BET) at 0.5% on enterprise value

Best for: Freelancers and remote workers who rent rather than own property. New Hampshire is the only state with no individual income tax AND no sales tax at either state or local level.

Watch out for: New Hampshire's Business Profits Tax (7.5%) applies to any business organized in NH or doing business in the state with gross income over $50,000. This tax applies to pass-through entities, meaning your LLC or sole proprietorship income is subject to it if you operate in NH. The BPT is similar to an income tax for businesses — don't assume "no income tax" means your business income goes completely untaxed at the state level.

Important change: New Hampshire fully repealed its 3% Interest & Dividends Tax effective January 1, 2025, ahead of the originally planned 2027 repeal date. Starting from the 2025 tax year, New Hampshire residents no longer pay any state tax on investment income.

5. South Dakota

Income tax: None Sales tax: 4.5% state + up to 2% municipal Property tax: Average effective rate around 1.08% Other business taxes: No corporate income tax, no business income tax, no personal property tax

Best for: Business owners who want the lowest total business tax burden. South Dakota has no corporate income tax, no personal property tax, and no business inventory tax. It's also a popular state for trust formation.

Watch out for: South Dakota's economy is smaller, which means fewer local clients and networking opportunities for service-based businesses. If your work is entirely remote, this may not matter.

6. Tennessee

Income tax: None (Hall Income Tax on dividends and interest fully repealed in 2021) Sales tax: 7% state + up to 2.75% local (among the highest combined rates nationally) Property tax: Average effective rate around 0.64% Other business taxes: Franchise tax (0.25% of net worth or tangible property, minimum $100) and excise tax (6.5% of net earnings) for certain businesses

Best for: Service-based freelancers who don't purchase many taxable goods. Tennessee's high sales tax rate hurts if you buy equipment or inventory, but doesn't affect service providers as much.

Watch out for: Tennessee's combined franchise and excise tax applies to LLCs, corporations, and other entities doing business in the state. The excise tax (6.5% on net earnings) is effectively a business income tax by another name. Sole proprietors are generally exempt, but LLCs are not — check whether your entity structure triggers these taxes.

7. Texas

Income tax: None (constitutionally prohibited) Sales tax: 6.25% state + up to 2% local (max combined 8.25%) Property tax: Among the highest nationally, averaging around 1.68% Other business taxes: Franchise tax (margin tax) — 0.75% for most businesses, 0.375% for retail/wholesale. No-tax-due threshold: $2,470,000 in total revenue.

Best for: Most small business owners and freelancers. Texas constitutionally prohibits an individual income tax, providing the strongest guarantee against future changes. The franchise tax's $2.47M no-tax-due threshold means most small businesses pay zero state business tax.

Watch out for: Texas property taxes are among the highest in the country. If you own a home or commercial property, expect to pay 1.5%-2.5% of assessed value annually. A $500,000 home in Texas generates roughly $8,400-$12,500 in annual property taxes — significantly more than in most income-tax states.

LLC formation: Texas charges a $300 formation fee and no annual report fee (you file a no-cost Public Information Report). The franchise tax only kicks in above $2.47M in revenue.

8. Washington

Income tax: None (on wages and business income) Sales tax: 6.5% state + up to 4% local (some areas exceed 10% combined) Property tax: Average effective rate around 0.94% Other business taxes: Business & Occupation (B&O) tax on gross receipts (rates vary by activity: 0.471% service, 0.484% manufacturing, 1.5% for certain activities). Capital gains tax (7% on gains up to $1M, 9.9% on gains above $1M, after $278,000 deduction).

Best for: W-2 employees and business owners with low gross receipts. Washington has no business income tax in the traditional sense — the B&O tax is based on gross revenue, not profit.

Watch out for: Washington's B&O tax applies to gross receipts with no deduction for expenses or cost of goods sold. A business with $500,000 in revenue and $400,000 in expenses still pays B&O on the full $500,000. For service businesses, the rate is 0.471%, meaning $500,000 in revenue generates $2,355 in B&O tax.

Capital gains alert: Starting with tax year 2025, Washington imposes a capital gains tax with a tiered rate structure: 7% on long-term gains above the $278,000 standard deduction (up to $1M) and 9.9% on gains exceeding $1M. This applies to stocks, bonds, and other capital assets — but not real estate, retirement accounts, or assets sold in certain business transactions.

9. Wyoming

Income tax: None Sales tax: 4% state + up to 2% county Property tax: Average effective rate around 0.55% Other business taxes: No corporate income tax. Minimal business licensing fees.

Best for: Business owners who want the simplest, lowest-tax state overall. Wyoming has low taxes across the board — no income tax, no corporate tax, low property and sales taxes.

Watch out for: Wyoming has a small population and economy. If your business depends on local clients, networking, or physical infrastructure, the limited market may be a drawback. For fully remote businesses, this concern doesn't apply.

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State Nexus: Why Your Home State Isn't the Whole Story

What Is Tax Nexus?

Tax nexus is the legal connection between your business and a state that gives that state the right to tax you. Even if you live in a no-income-tax state, you may owe income tax to other states where you have nexus.

How Freelancers Create Nexus

You may have income tax obligations in another state if you:

• Have clients in that state — Some states tax income earned from clients within their borders, even if you perform the work remotely from another state
• Travel to a state for work — Working in a state for more than a certain number of days (varies by state) can trigger filing obligations
• Have a physical office or co-working space in another state — Physical presence is the strongest form of nexus
• Hire employees or contractors in another state — Payroll and contractor payments can create nexus
• Sell products into a state — After the South Dakota v. Wayfair (2018) Supreme Court decision, economic nexus rules apply to online sellers

Common Nexus Scenarios for Remote Workers

Scenario 1: Florida resident, New York clients You live in Florida (no income tax) and do consulting work for New York-based companies. If you travel to New York and work from their offices, New York can tax you on the income earned during those days. If you work entirely from Florida, New York generally cannot tax you — but New York has aggressive "convenience of the employer" rules that may apply if your work could be done from New York.

Scenario 2: Texas resident, California project You live in Texas and take a 3-month contract that requires you to work on-site in California. California will tax the income you earn during those months, regardless of your home state. California is particularly aggressive about taxing nonresidents.

Scenario 3: Wyoming resident, clients in multiple states You're a freelance writer in Wyoming doing work for clients in 10 different states. Generally, if you perform all work from Wyoming, only Wyoming (which has no income tax) has the right to tax your income. The clients' locations don't create nexus if you never work in their states.

States With Aggressive Nonresident Taxation

Bottom line: Living in a no-income-tax state protects you from your home state's taxes, but it doesn't protect you from states where you actually earn income or perform work.

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LLC Formation State vs. Personal Residence State

They're Separate Decisions

Where you form your LLC and where you live are two different choices, and they have different tax consequences.

Personal residence state: Determines which state can tax your personal income (wages, business distributions, investment income).

LLC formation state: Determines which state's laws govern your LLC structure, operating agreement, and legal protections.

Common Strategy: Wyoming or Delaware LLC + No-Income-Tax Residence

Many freelancers form their LLC in Wyoming or Delaware (for privacy and legal protections) while living in a no-income-tax state. This works, but with caveats:

• You must register as a foreign LLC in your home state. If you form a Wyoming LLC but live and work in Texas, you need to register your Wyoming LLC in Texas as a foreign entity. You pay fees in both states.
• Your home state taxes your income regardless of where the LLC is formed. Forming an LLC in Wyoming doesn't make you a Wyoming taxpayer. Your income is taxed based on where you live and where you work.
• Formation state affects legal protections, not taxes. Wyoming and Delaware have strong asset protection and privacy laws. But they don't change your tax obligations.

When Forming in a Different State Makes Sense

• Privacy: Wyoming and New Mexico don't require public disclosure of LLC members
• Asset protection: Wyoming has strong charging order protections
• Flexibility: Delaware has well-developed business law and a specialized court (Court of Chancery)
• Simplicity: If you live in a no-income-tax state with straightforward LLC laws, forming locally is usually cheapest and simplest

When It Doesn't Make Sense

If you live and work entirely in one state, forming your LLC in a different state usually adds cost without tax benefit. You'll pay formation fees in the formation state plus foreign registration fees in your home state.

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Establishing Domicile: How to Make It Official

If you're relocating to a no-income-tax state, your former state may challenge the move — especially if it's a high-tax state. Here's what you need to do to establish domicile:

The Domicile Checklist

• Physical presence — Spend the majority of your time (ideally 183+ days) in your new state
• Driver's license — Get a new driver's license in your new state
• Voter registration — Register to vote in the new state
• Vehicle registration — Register your vehicles in the new state
• Bank accounts — Open accounts at local banks
• Professional licenses — Update to the new state
• Mailing address — Update your address with the IRS (Form 8822), banks, and creditors
• Estate planning — Update your will and trusts to reference new state law
• Property — Sell or rent out your former home; buy or rent in the new state
• Social ties — Join local organizations, churches, clubs
• Medical professionals — Establish relationships with local doctors and dentists

States That Audit Departing Residents

California: The Franchise Tax Board is known for aggressive departure audits. They track cell phone records, credit card transactions, and social media activity to determine whether a former resident truly left. Keep meticulous records.

New York: The Department of Taxation and Finance conducts residency audits examining where you maintain a permanent place of abode, where your near-and-dear items are located, and your day counting.

New Jersey, Connecticut, Minnesota: Also known for scrutinizing claims of nonresidence.

Day Counting Rules

Most states use a 183-day test — if you spend 183 or more days in the state, you're presumed to be a resident. Some important nuances:

• Any part of a day counts as a full day in most states
• Travel days (where you're in transit through a state) may or may not count depending on the state
• Keep a log — contemporaneous records (calendar entries, travel receipts, GPS data) are far more convincing than after-the-fact reconstructions

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Multi-State Filing for Freelancers

When You Must File in Multiple States

If you live in a no-income-tax state but earn income in other states, you may need to file nonresident returns. Common triggers:

1. Performing services in another state — Even a few days of on-site work can trigger a filing requirement
2. Rental income — Owning rental property in another state requires filing there
3. Partnership or S-Corp income — If your pass-through entity operates in multiple states, you may owe tax in each state where it has nexus
4. Selling goods — Economic nexus rules (usually $100,000 in sales or 200 transactions) trigger sales tax obligations

How Multi-State Filing Works

Example: Texas resident, earned income in California and New York

Texas: No state return needed (no income tax)

California nonresident return:
  Total income: $200,000
  CA-source income: $40,000 (2 months on-site work)
  CA tax rate applied to CA-source portion
  CA tax owed: ~$3,200

New York nonresident return:
  Total income: $200,000
  NY-source income: $25,000 (consulting work on-site)
  NY tax rate applied to NY-source portion
  NY tax owed: ~$1,500

Federal return: Reports all income regardless of state

Credits and Avoiding Double Taxation

If you live in a state WITH income tax and earn income in another state, your home state typically gives you a credit for taxes paid to the other state. But if you live in a no-income-tax state, there's no credit mechanism — you simply pay the other state's tax on that portion of income, and your home state charges nothing.

This is actually an advantage: you only pay state tax on income actually earned in taxable states, while your home-state income remains untaxed.

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Pros and Cons for Business Owners

Advantages of No-Income-Tax States

Immediate cash flow benefit. State income taxes typically range from 3%-13.3%. On $150,000 of income, that's $4,500-$19,950 per year that stays in your pocket.

Simpler filing. No state income tax return means less paperwork, lower tax prep costs, and fewer opportunities for errors.

Attracting talent. If you hire employees, no income tax withholding means higher take-home pay — making your offers more attractive without increasing payroll costs.

Business-friendly environment. Most no-income-tax states are actively trying to attract businesses with favorable regulatory environments, lower fees, and streamlined permitting.

Disadvantages and Hidden Costs

Higher property taxes. Texas and New Hampshire offset lost income tax revenue with high property taxes. A $500,000 home in Texas costs $8,400-$12,500 in annual property taxes.

Higher sales taxes. Tennessee (up to 9.75% combined) and Washington (up to 10.5%) have some of the highest sales tax rates in the country.

Business taxes by other names. Washington's B&O tax, Texas's franchise tax, Tennessee's excise tax, and New Hampshire's Business Profits Tax are functionally similar to income taxes for businesses.

Fewer public services. Some no-income-tax states spend less on education, infrastructure, and social services. This may or may not affect your business depending on your needs.

Quality of life trade-offs. Alaska's weather and isolation, Wyoming's sparse population, Nevada's desert climate — personal preferences matter beyond the tax bill.

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Common Mistakes With No-Income-Tax State Planning

Mistake #1: Assuming "No Income Tax" Means No State Taxes at All

Problem: A freelancer relocates to Washington state expecting zero state tax, then discovers the B&O tax on gross receipts and the new capital gains tax.

Impact: A service business with $300,000 in gross receipts owes $1,413 in B&O tax. Selling $500,000 in stock triggers a 7% capital gains tax on gains above $278,000.

Solution: Research ALL state and local taxes before relocating, not just income tax. Calculate your total state tax burden including sales, property, business, and excise taxes.

Mistake #2: Changing LLC State Without Changing Residence

Problem: A California freelancer forms a Wyoming LLC but continues living and working in California, expecting to avoid California income tax.

Impact: California taxes you based on where you live and work, not where your LLC is formed. You now pay LLC fees in both Wyoming and California, with zero tax savings.

Solution: Your personal residence determines which state taxes your income. Changing your LLC state without changing your residence has no income tax benefit.

Mistake #3: Not Establishing Proper Domicile

Problem: A New York consultant "moves" to Florida but keeps a co-op in Manhattan, votes in New York, and spends 150+ days per year there.

Impact: New York audits and determines he's still a resident. He owes back taxes, penalties, and interest on all income for the years he claimed Florida residency.

Solution: Follow the full domicile checklist. Sever ties with your former state systematically and document your new state presence thoroughly.

Mistake #4: Ignoring Multi-State Nexus Rules

Problem: A Texas-based consultant travels to client sites in California, Illinois, and New York without tracking days or filing nonresident returns.

Impact: If audited, he owes income tax to each state for the days worked there, plus penalties and interest for failure to file.

Solution: Track days spent in each state. File nonresident returns where required. Consider whether the work can be done remotely to avoid creating nexus.

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Plan Your State Tax Strategy With Jupid

Your state tax situation affects how much you keep from every dollar earned. Whether you're already in a no-income-tax state or considering a move, Jupid helps you stay organized.

What makes Jupid different:

• Income tracking by source — Jupid's bank connection and auto-categorization (95.9% accuracy) tracks where your income comes from, making multi-state allocation straightforward

• Real-time federal tax estimates — Ask "What's my estimated tax bill?" via WhatsApp or iMessage and get calculations that account for your self-employment tax, income tax, and QBI deduction

• Expense categorization — Every business deduction reduces your federal taxable income, and Jupid catches deductions you'd otherwise miss. Even in a no-income-tax state, federal taxes still apply — and every dollar of deduction matters

• Quarterly payment reminders — Jupid calculates and reminds you about estimated tax payments, so you avoid penalties

Example conversation:

• You: "I'm thinking about moving from California to Texas. How much would I save?"
• Jupid: "Based on your current income of $140,000 net profit: you'd save approximately $9,200 per year in California state income tax. Your federal taxes ($26,400 estimated) remain the same regardless of state. Want me to break down the full comparison including property tax differences?"

Start tracking your taxes with Jupid

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Action Checklist: No-Income-Tax State Planning

Research Phase

• Identify which no-income-tax states fit your lifestyle and business needs
• Calculate total state tax burden in each candidate state (not just income tax)
• Research business taxes: franchise tax, B&O tax, excise tax, commerce tax
• Check property tax rates if you plan to buy a home
• Review sales tax rates for states where you'll make purchases

Nexus and Multi-State Obligations

• Identify every state where you earn income or perform work
• Determine whether each state requires a nonresident return
• Track days spent in each state throughout the year
• File nonresident returns where required
• Check whether your clients' states have "convenience of the employer" rules

Relocation Steps

• Plan to spend 183+ days in your new state
• Complete the domicile checklist (license, voter registration, vehicle, banking)
• Keep records documenting your presence in the new state
• Sever ties with your former state systematically
• Update your address with the IRS using Form 8822

LLC and Business Setup

• Decide whether to form your LLC in your new home state or another state
• Register as a foreign LLC if your formation state differs from your operating state
• Check for state-specific business filing requirements (annual reports, franchise tax)
• Update your EIN records with the IRS if you change business addresses

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Resources and Citations

IRS and Federal Resources

• IRS Publication 505 — Tax Withholding and Estimated Tax (multi-state guidance)
• IRS Form 8822 — Change of Address
• IRS Publication 463 — Travel, Gift, and Car Expenses (business travel across states)

State Tax Authorities

• Alaska Department of Revenue
• Florida Department of Revenue
• Nevada Department of Taxation
• New Hampshire Department of Revenue Administration
• South Dakota Department of Revenue
• Tennessee Department of Revenue
• Texas Comptroller of Public Accounts
• Washington Department of Revenue
• Wyoming Department of Revenue

Tax Code and Legal References

• IRC §162 — Trade or business expenses (deductible regardless of state)
• IRC §199A — QBI deduction (federal, applies in all states)
• South Dakota v. Wayfair, Inc. (2018) — Economic nexus for sales tax
• Uniform Division of Income for Tax Purposes Act (UDITPA) — Multi-state income allocation framework

2026 Key Numbers

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Final Thoughts

Living in a no-income-tax state is a legitimate, powerful tax planning strategy. For a self-employed person earning $150,000, avoiding a 5%-10% state income tax saves $7,500-$15,000 annually. Over a career, that compounds into a meaningful difference in wealth.

Three principles to guide your decision:

1. Look at total tax burden, not just income tax. Texas has no income tax but high property taxes. Washington has no income tax but a B&O tax on gross receipts and a capital gains tax up to 9.9%. The state with the lowest income tax isn't always the state with the lowest total tax bill for your specific situation.

2. Nexus follows the work, not the worker. If you physically perform services in California, California can tax that income regardless of where you live. Track your days in each state and file where required.

3. Domicile must be real. If you claim to have moved but maintain significant ties to your former state, an audit can unwind the entire strategy. Make the move genuine, document it thoroughly, and don't try to game the system.

No-income-tax states offer real savings. Just make sure you're seeing the full picture before you move.

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Disclaimer

This article provides general information about state income taxes and should not be considered tax or legal advice. State tax laws, rates, and nexus rules change frequently and vary significantly between jurisdictions. Multi-state tax situations are particularly fact-specific. Your actual tax obligations depend on your domicile, income sources, business structure, and activities in each state. For advice specific to your situation, consult with a qualified tax professional familiar with the relevant states.

Tax Year: 2026 Last Updated: March 11, 2026