States With No Income Tax: What a Business Owner Still Pays

Which states have no income tax on wages?

Nine states tax no wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. The District of Columbia taxes the income of a person who is domiciled there or keeps a home there for 183 days or more (DC Office of Tax and Revenue).

A business owner is not finished there. Four of the nine tax the company through an income, profits or net-worth tax, and most of the rest tax revenue, payroll or a license. Your old state may keep taxing you after a move, and any state where you work or sell may tax that income.

Do these states tax interest, dividends or investment gains?

Only Washington taxes investment gains today. New Hampshire and Tennessee each once taxed interest and dividends, and both have repealed that tax (New Hampshire; Tennessee).

Washington's capital gains excise tax applies to individuals' long-term gains on assets such as stocks, bonds and business interests. Taxable gain up to $1,000,000 is taxed at 7%, and gain above that line at 9.9% (tiered rates notice). A standard deduction applies ($278,000 for 2025, the latest amount the state lists), adjusted for inflation each year, and real estate is exempt. An owner can owe on a gain that a pass-through or disregarded entity realizes (Washington Department of Revenue). Gain on intangible assets such as shares counts when the seller was domiciled in Washington at the time of sale, and gain on tangible property counts when the property was in Washington when sold (Do you owe capital gains tax?).

Washington has also enacted an income tax of 9.9% on annual adjusted gross income above $1,000,000. It starts January 1, 2028 (Washington Department of Revenue). The rule in force when the income arrives applies, not the rule today.

What does a business pay instead of income tax in each of the nine?

Eight of the nine tax the business itself through an income, profits, franchise, gross receipts, commerce, payroll or license tax. South Dakota has no such tax for most businesses. The amounts change, so check the linked page before you file.

Is "no income tax" true for a corporation there, or only for a person?

It is true for a corporation in some of these states, not all. A C corporation faces an income or profits tax in Alaska, Florida, New Hampshire and Tennessee. In Texas and Washington it faces a tax on margin or on gross receipts instead of on profit, so it can owe with no profit. South Dakota and Wyoming charge no corporate income tax.

Nevada has no income tax on individuals, but a company there can owe the commerce tax on gross revenue and the modified business tax on payroll.

Does an LLC or S corporation in one of these states pay anything?

It can. Several of the entity-level taxes in the table reach LLCs and pass-through entities directly.

• Tennessee: an LLC chartered, qualified or registered there, or doing business there, must register for and pay franchise and excise tax, even though the state has no personal income tax. Some family-owned entities that earn mostly passive income can be exempt (Tennessee Department of Revenue; exemption).
• New Hampshire: an LLC or partnership is a business organization taxed as a separate entity under the profits tax (RSA 77-A).
• Florida: an LLC taxed as a corporation owes corporate income tax. An LLC taxed as a partnership files an information return if any owner is a corporation, and a single-member LLC disregarded for tax is not required to file a separate return. An S corporation files only if it pays federal tax on its Form 1120-S (Florida Department of Revenue).
• Alaska: S corporations are exempt from tax but must file (Alaska Tax Division annual report).
• Texas, Washington, Nevada and Wyoming: these taxes fall on the entity's revenue, payroll or assets, not on profit. Check each state's page for how your entity type and size are treated.

Do I still owe another state's tax on income earned there?

Yes, you may. A state taxes a nonresident on income from sources inside that state, whatever your home state charges. California's rule is typical: residents are taxed on all income, and nonresidents only on California-source income (FTB Publication 1031).

Work done in another state, a rental there, or a pass-through business with activity there can each create a return. Each state sets its own filing minimum. See nonresident return thresholds by state and business income tax in other states.

Does moving to a no-income-tax state end my old state's tax?

Usually only if you actually change your domicile, and the old state decides whether you did. Some states also tax by day count. California, for one, says a change of domicile requires all of the following: abandoning the prior domicile, physically moving to and living in the new place, and intending to stay there permanently or indefinitely as shown by your actions (FTB Publication 1031). Other states use their own tests.

Keeping a home, a business or family ties in the old state can lead it to keep taxing you as a resident. A move can also leave the old state a claim on income sourced there. For the audit-heavy cases, see leaving New York, California or New Jersey for Florida or Texas and moving out of California before a sale.

Does forming a company there help if I live and work elsewhere?

Not for income tax. A company formed in a no-income-tax state does not stop the state where you live or work from taxing you or the company's activity there, and it can add its own tax.

• Texas: the franchise tax applies to entities formed in Texas or doing business there (Texas Comptroller).
• Wyoming: the annual license tax applies to an LLC or corporation, with a minimum of $60 (Wyoming Secretary of State).
• Where you operate: California treats an entity as doing business there when its California sales, property or payroll passes a dollar line or 25% of the total, and an LLC doing business or organized there owes the annual tax of $800 (doing business; LLC tax).

Choosing the formation state is its own decision; see which state to form in. An existing company that follows you has separate steps; see moving your company to another state.

What should I gather before relying on a move or a formation?

Gather the records that show where you live and where the money is earned before you decide, and keep them for years.

1. Dates you moved, plus lease or closing papers for the new home and what you did with the old one.
2. Driver's license, voter and vehicle registrations, and where your doctors, bank and family are.
3. A day count for each state where you spend time.
4. Where each owner works, where each employee works, and where customers are.
5. The company's formation documents, tax classification and each state's registrations.
6. Last year's returns for every state you filed in, and any notice from your old state.

Example

These examples are illustrative; figures are in US dollars.

Texas LLC with $1,000,000 of revenue

The owners pay no Texas personal income tax. The LLC is below the franchise tax no-tax-due threshold, so it generally owes no franchise tax, but it must still file a Public Information Report by the due date. If revenue passed the threshold, the report would compute tax on margin.

Washington founder sells shares for a $500,000 gain

A founder domiciled in Washington sells shares held for more than a year at a $500,000 gain, none of it excluded federally as qualified small business stock. Washington does not tax gain that is excluded that way (Washington Department of Revenue FAQ). Washington has no wage tax, but the capital gains excise tax can apply. With an illustrative deduction of $278,000, the taxable gain is $222,000, taxed at 7%, or $15,540. The deduction changes yearly, and credits and exemptions may change the result.

California owner "moves" to Florida but keeps the home and the company

An owner lists a Florida address but keeps the California house and runs the company from California. California taxes residents on all income, and it decides residency from the facts, not the address. The owner may still be taxed as a California resident until the facts match the claim.

Different for you?

• You are moving from New York, California or New Jersey: the residency test and your K-1 split are the hard part; see the move guide for fund managers and corporate tax help.
• You plan to sell a company soon: timing the move matters; see moving out of California before a sale.
• Your business sells or has workers in other states: see business income tax in other states.
• You run a Texas LLC or corporation: see Texas franchise tax.
• You sell into Washington, Ohio or Oregon with no office there: see gross receipts taxes in other states.
• You live outside the state you form in: see which state to form in.
• You already own a company and want to move it: see moving your company to another state.