7 States with No Income Tax
92Most states levy a cover charge for individuals known as personal income tax. That tax can add significantly to the federal tax burden placed on an individual or a family. The states with the highest rates of personal income tax are:
- Vermont - 9.5% maximum
- California- 10.3% maximum
In Vermont, the maximum total tax burden on an individual, including federal tax at the highest rate of 35%, is a shocking 44.5% of that person's income. In California, due to a 1% mental health tax charged on incomes of over $1,000,000, the maximum total tax burden can be up to 45.3% of a person's income.
With such high rates of personal income tax in many states, it leaves many wondering if there is way to reduce taxable income.
States with No Income Tax
While there are many strategies to reduce taxable income - which are beyond the scope of this article - there is one sure-fire way to reduce income taxes on that income. You can choose to reside in one of the seven states that do not levy personal income tax:
Two other states, New Hampshire and Tennessee, impose taxes for individuals only on dividend and interest income. In fact, in 1960 the Tennessee Supreme Court ruled tax on personal income to be unconstitutional in its decision in Jack Cole Company v. Alfred T. MacFarland.
Federal Income Tax - Is it Constitutional?
Do States with No Income Tax Compensate with Higher Sales Tax?
Do states with no income tax compensate by charging higher sales tax in order to raise revenue? Of the seven states that impose no income tax, along with New Hampshire and Tennessee, four charge among the highest sales tax rates in the country:
- Nevada - 6.5%
- Tennessee - 7.0%
- Texas - 6.25%
- Washington - 6.5%
Despite the availability of this alternate tax to raise revenue, Alaska and New Hampshire are two states that charge NO SALES TAX, in addition to charging no personal income tax.
Income Tax in the News
- U.S. Amends Income Tax Treaty with FranceWebCPA30 hours ago
The Treasury Department said a new protocol amending the income tax treaty with France has entered into force.
- Income Tax official held for bribePress Trust of India35 hours ago
Pithoragarh (Uttarakhand), Dec 29 (PTI) An Income Tax officer was today arrested by CBI, when he was allegedly accepting Rs 50,000 as bribe here, official sources said here.
- Sales tax income is down, but chins upHutchinson News2 days ago
Annual sales tax income this year for Reno County fell 3.9 percent from 2008, and for the city of Hu ...
Do They Make it Up in Corporate Income Taxes?
Do the seven states that charge no personal income tax, also considering New Hampshire and Tennessee, make it up by charging higher corporate income taxes?
- Well, Alaska certainly tries. Their graduated income tax rates top out at 9.4% for corporate income of over $90,000.
- Florida charges a flat corporate income tax rate of 5.5%, or the higher of of the flat rate or 3.3% alternative minimum rate, for taxpayers who owe federal AMT.
- Nevada charges NO corporate income tax.
- New Hampshire has two separate corporate taxes: the BPT (Business Profits Tax) and BET (Business Enterprise Tax). New Hampshire charges 8.5% BPT for corporations with gross receipts over $50,000. BET is a 0.75% tax on enterprise value tax base on corporations with gross receipts of over $150,000 or an enterprise value tax base over $75,000.
- South Dakota charges NO corporate income tax, only a 6% assessment on net income of banks.
- Tennessee charges 6.5% corporate income tax and a franchise fee of 0.25% of the greater of net worth or real or tangible property.
- Texas charges NO corporate income tax, only a 1% franchise tax, which is a tax assessed on gross receipts of most taxable entities.
- Washington charges NO corporate income tax, but assesses a tax on gross receipts called the Business & Occupation (B&O) Tax.
- Wyoming charges NO corporate income tax.
Federal Income Tax - Is it Constitutional?
Do you think personal income tax is (or should be) constitutional?
See results without votingFor individuals and families looking for tax-friendly states in which to live, all these states are great choices, but with Alaska (break out the Snowmobile) and New Hampshire offering both no personal income tax and no state sales tax, they are standouts.
For businesses looking for tax-friendly states in which to locate, Nevada, South Dakota, Texas, Washington, and Wyoming are all good options, as they offer limited or no corporate income tax, as well as no personal income tax.
For all my fellow small business/entrepreneur friends, a word of caution. Please do NOT incorporate in one of these tax-friendly states unless you plan to locate there and do substantial business in the state. The legal term is 'nexus'; there must be a strong connection between you, your business, its location, and the area in which you do the majority of your business. This way, you will avoid a heap of trouble with your home state's department of revenue that even a team of fancy CPAs can't get you out of.
Why not consider taking advantage of your right to 'vote' for the most fiscally responsible state government possible - with your choice of personal and/or corporate residence - if you have the inclination and the opportunity to do so. You have everything to gain, except more taxes.
Hub-Knobbing
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A lot of people around the world aren't happy about the taxes they are paying. This article looks on the bright side! Here are ten very odd, weird taxes you almost certainly aren't paying.... - Top Tax Write-Offs and Deductions for Freelance and Work-from-Home Employees
Most of the people that I know who do freelance work or who otherwise work from home are people who get really excited when it comes time to check the mail each day. That is because we are regularly waiting... - How Much Money Do You Have to Make to File Taxes?
How much money do you have to make to file taxes?... What is the minimum income to file taxes?... These sort of questions have been asked over & over again on forums and message boards all across the web. ...
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Comments
Vicki, The reason for the discrepancy is that while the base rate for Washington State is 6.5%, the local sales tax rate, which is added to the base rate for the state, varies according to your location. The link to the current table (as of April - June 2009) for Washington's Local Sales and Use Tax Rates by City/County is here:
http://dor.wa.gov/Docs/forms/ExcsTx/LocSalUseTx/Lo
For instance, in Aberdeen and Benton City, the combined sales tax rate is 8.3% due to the combined 6.5% base rate and 1.8% local rate. All the local add-on taxes add up, don't they? Thank you for stopping by.
I hate paying tax, Staci I just read your comment on my Diazepam hub, thank you x
BC, I hate paying taxes, too, because they've become so pervasive. Taxing the people above and beyond the amount necessary for national defense and protecting us from lawlessness here at home, really amounts to wealth redistribution - when it's required by law - with no opt-out option.
i am sick of tax's it's like the answer to slove all problems. The workers are the one's who suffer. i live in conn. I am on my way out !!
CMB, thank you for posting. Yes, you and many others are tired of working to have up to half their income taken by government in taxes. Unfortunately, taxes are being used more and more as a means of wealth redistribution in this country. This approach takes from those who earn and gives it to those who don't and undermines economic incentive to do well.
I still hate paying taxes !!
I couldn't agree more, BC!
This is great advice! I lived in NH as a child...maybe I should go back! As a nurse, I can find work anywhere...I should take advantage of that! Thanks for the great hub!
K@ri, you definitely have great options as a nurse. I know I've read recently, either on HubPages or on Yahoo, that traveling nurses make even better money. Thanks for taking time to read and your kind comments. Best wishes to you!
In Wyoming, they recently dropped the sales tax on food, to make it easier for those truly struggling.
Ivorwen, that indicates a measure of the wisdom of Wyoming's legislature, as your elected officials obviously understand that their citizens may be struggling during this time, and that decreasing - not increasing - the individual tax burden is the best way to promote economic growth. Thanks for taking time to comment.
Taxes are ridiculous when we have absolutely no say in the matter. I live in MA and our sales tax is set to increase next month. The other citizens and I had no say in the matter. The best part is our services just get worse and worse. The prices of public transportation goes up every year. We now have a law that if you fight a ticket that you get you need to pay a $25 fine whether you are found at fault or not. I have gotten 3 tickets in my life and none were justified. I was given them because I was young and in a fast muscle car. I fought all three cases and won. Today I would have had to miss work and lose pay and pay a $75 fine on top of that. Our government is practically robbing
us and well we need to take it or protest and get thrown in jail. I think I should pack up the family and head to New Hampshire. Their motto speaks for itself "Live Free or Die". At least the people there won't put up with this crap.
Jim, I am shocked at the unbridled arrogance of the MA legislature in fining a defendant for a speeding ticket - even if found NOT guilty. On what possible grounds? What an example of governmental overreaching and violation of due process!
Protest by the citizens, unless there is a groundswell from the people and scrutiny from the media, will not resolve the issue. The law should be challenged on constitutional grounds. The expense of the fine is not worth the cost of the appeal to one individual, of course, but the legal principles involved are very much worth appealing as far as need be until this provision is overturned, for the sake of justice in that state. If the law is not challenged, you can expect to see your individual rights further eroded by the MA legislature.
I couldn't agree more. I heard it on the news a few weeks ago and just could not believe my ears. I then read it at their website. Sure it costs money to have the appeal but, in general if you feel you were wrongly given a ticket you will fight it. If you think it might have been your fault or you know it was, you probably won't waste your time fighting it. If cops are giving out legitimate tickets then the judge will side with them and the citizen will pay the high fine involved. I just can't believe it. Deval Patrick is a moron and I'm sure he won't be here much longer. Here is an article about it if you don't mind. http://www.telegram.com/article/20090702/NEWS/9070
I believe our state is making cops more like just toll takers with guns.
Jim, I heartily understand your frustration. With respect to the law imposing the fine upon defendants who are not guilty, it must only be challenged successfully once. Thereafter, it will be of no force and effect.
It requires constant vigilance to protect the rights of the individual against the potential for abuse of power of the State. The Constitution was crafted to secure to the people this guarantee of freedom from oppression. Whether it's fining innocent defendants, stripping citizens of the right to freedom of political speech, or requiring that citizens pay income taxes of up to 50% of their annual salary, our Constitution sets out protections against such intrusion into the private lives and purses of the people of this country. However, the Constitution is only as good as the citizens and the judiciary who are willing to enforce it.
Friends, know how the judges in your county, your state, and your nation are ruling on important matters that impact your rights as an individual:
Freedom of speech,
Freedom of religion,
Right to bear arms,
Right to property (severely limiting eminent domain), and
Right to due process
being among those rights which have suffered assault in recent years.
Give your support only to those public servants who faithfully construe the rights set forth in our Constitution and err in favor of the individual. In this way, you will guard the freedoms intended by our founding fathers - to this generation and to our children and to those who come after them.
Good information, and useful in this time when so many are losing their jobs and homes in some states and looking for a better place to make their lives.
Leader Writing, I couldn't agree more. Those that have the option to relocate to tax-friendly states have a powerful means of encouraging and supporting fiscal responsibility among state governments.
very informative..
Yes we have no state income tax, and some say our school district and land taxes are some of the highest in the nation. BUT - just west of Fort Worth, near a major city I can still buy a 3 bed / 2 bath brick house with attached garage for under 80k. Came to Texas in 1968 and have never left, travel all over as a contractor, and I think cost of living and standard of living better than anywhere else.
Vicki says:
8 months ago
I don't know where you got your info, but I live in WA state and we pay 8.3% in sales tax and there's talk of raising it!