15 States with No Income Tax or Sales Tax
In this article, we will look at the 15 states with no income tax or sales tax. We will also explore the latest tax brackets and analyze the cooperation of big companies in terms of tax payments. If you want to skip our detailed analysis, head straight to 5 States with No Income Tax or Sales Tax.
According to the Internal Revenue Service (IRS), the minimum individual income tax rate is 10% and the maximum income tax rate is 37% for 2023. The IRS tax brackets for 2023 have a 7% higher upper limit compared to the bracket for 2022. In 2023 the minimum taxable income bracket for individuals is $0 to $11,000 compared to $0 to $10,275 in 2022. It is a good sign for those who are suffering from inflation, making them less likely to pay higher tax rates in 2023. That said, the IRS is progressive in collecting federal income taxes which means that those with higher incomes pay at higher rates.
According to the Office of Management and Budget, the federal government projects to collect around $2.33 trillion in individual income taxes in 2023. That will account for almost 48.5% of the US government’s total federal income tax receipts. The IRS expects around 168 million individual tax returns to be filed in 2023. The IRS has taken additional steps and hired more workforce to improve its tax collection this year.
Zero Tax Rate States
Zero tax on income means that the state does not impose taxes on personal income. Living in a state with no income tax means that you only have to submit a federal return for your taxable income during the tax season annually. Eight US states have no income tax. While New Hampshire has no tax on earned wages, the state does charge a flat individual income tax rate of 4% on investment earnings. Five states including Alaska, Delaware, Montana, Oregon, and New Hampshire, have no state sales tax.
If you live in a state with no income tax or sales tax, you are still likely to pay federal income taxes if your total income reaches the tax bracket. Moreover, in states without income tax, you would come across other state taxes or higher charges on residential sales, and property or excise tax. For instance, Tennessee has one of the highest state sales taxes at 7%. Similarly, Washington does not have income tax but charges a state sales tax of 6.50%. Another state with zero income tax, South Dakota, has one of the lowest state spending on education. According to Education Data, South Dakota spends around $13,000 per pupil. Whereas, schools in the US spend an average of $19,380 per pupil. Therefore, as a citizen in a tax-free state, you may have to compromise on certain things.
American Tax Providers
H&R Block, Inc. (NYSE:HRB) is one of the top tax service providers in the US. H&R Block, Inc. (NYSE:HRB) stock has soared by 27.73% over the last six months, as of October 17. H&R Block, Inc. (NYSE:HRB) continues to remain a top performer in assisted tax preparations. The tax provider is working to improve consultative tax experiences through generative AI. On June 20, H&R Block, Inc. (NYSE:HRB) announced that it is collaborating with Microsoft Corporation (NASDAQ:MSFT) to use its AI technology and Azure OpenAI services to build and enhance consultative tax services for its customers.
TurboTax, Intuit Inc.'s (NASDAQ:INTU) online software, is one of the leading tax management platforms in the US. On August 24, Intuit Inc. (NASDAQ:INTU) reported its full-year results for 2023. Intuit Inc.'s (NASDAQ:INTU) platforms including TurboTax Online, Credit Karma, and the Small Business and Self-Employed Group Online Ecosystem contributed $11 billion to the revenue of the company in 2023, a 14% increase year over year. In 2023, TurboTax Live's revenue increased by 17% and its customers grew by 12% year over year.
On September 6, Intuit Inc. (NASDAQ:INTU) announced the launch of Intuit Assist, its latest generative AI-powered assistant. Intuit Assist will help various platforms of the company including TurboTax. Through this generative AI tool, Intuit Inc.'s (NASDAQ:INTU) customers will get personalized recommendations so they can maximize their tax refund and accurately file taxes in time with TurboTax. Here is what Intuit Inc. (NASDAQ:INTU) posted regarding Intuit Assist:
“Underpinned by Intuit’s decades of tax domain expertise, rich data, and proprietary, AI-powered Tax Knowledge Engine, Intuit Assist will work alongside tax filers of any income or complexity, helping them every step of the way. It will get to know a consumer’s individual tax situation and apply its knowledge, navigating the tax code, including the latest changes. This will help reduce tax preparation time and help consumers gain faster access to refunds, with complete confidence that their taxes are done accurately.”
CBIZ, Inc. (NYSE:CBZ) is another top provider of tax, accounting, and advisory services. On June 5, CBIZ, Inc. (NYSE:CBZ) announced the acquisition of information security consulting firm, Pivot Point Security. The information security firm will assist CBIZ, Inc. (NYSE:CBZ) regarding the complex challenges of information security and compliance. Here are some of the comments from the company's Q2 2023 earnings call:
"Demand for our core accounting and tax services remained strong. We were also pleased to see continued strong demand for our advisory services, where the work tends to be more discretionary and project based.
During the second quarter, we completed another strategic acquisition to be included within our Financial Services Advisory business and a small specialty tuck-in acquisition to be included within our accounting and tax business. Among them is Pivot Point Security, a cyber and information security firm based in New Jersey. We’ve been searching for an acquisition in this area for a long time. We are pleased to have found a cybersecurity firm that will enhance our advisory service offerings and bring added expertise in this area to our CBIZ team. In addition to Pivot Point, during the second quarter, we added a small boutique CPA firm specializing in bespoke services and solutions for high net worth individuals, business owners and executives."
15 States with No Income Tax or Sales Tax
Our Methodology
For the methodology, we have gathered data for the states with no income or sales tax from the Tax Foundation. Our ranking is based on the states with either zero income tax or zero sales tax. To assign importance to each tax, we have given equal weights to both income and sales tax. States with minimum individual income tax and state sales tax rates are ranked higher on the list. We have ranked the list of 15 states with no income tax or sales tax in descending order of the aforementioned metrics.
Important Note: We have considered Ohio among the states with no income tax as it has zero corporate income tax. We have also included Oklahoma which has a minimum income tax of 0.25%, a minimum income tax close to zero.
15 States with No Income Tax or Sales Tax
15. Oklahoma
Individual Income Tax Rate: 0.25%-4.75%
State Sales Tax Rate: 4.50%
Oklahoma is one of the states with the lowest individual income tax rates ranging from 0.25% to 4.75%. The corporate income tax is 4% in Oklahoma.
Some of the top tax services providers in the US include H&R Block, Inc. (NYSE:HRB), Intuit Inc. (NASDAQ:INTU), and CBIZ, Inc. (NYSE:CBZ).
14. South Carolina
Individual Income Tax Rate: 0%-6.50%
State Sales Tax Rate: 6%
South Carolina is one of the few states with individual income tax ranging from 0% to 6.50%. The corporate income tax rate is 5%, while it has an average combined state and local sales tax rate of 7.43%. South Carolina ranks 14th on our list of the states with no income tax or sales tax.
13. Tennessee
Individual Income Tax Rate: 0%
State Sales Tax Rate: 7%
Tennessee does not have an individual income tax, however the corporate income tax is 6.50%. Tennessee is among the states with one of the highest state sales tax of 7%. Tennessee makes it to our list of states with no income tax or sales tax.
12. Nevada
Individual Income Tax Rate: 0%
State Sales Tax Rate: 6.85%
Nevada is one of the states with both zero individual and corporate income taxes. Nevada’s average combined state and local sales tax rate is 8.23%. Nevada ranks among the states with no income tax or sales tax.
11. Washington
Individual Income Tax Rate: 0%
State Sales Tax Rate: 6.50%
Washington is another state with no typical individual income tax or corporate income tax. However, the state charges a levy on capital gains income, and for corporate income tax, it does levy a gross receipts tax. Washington’s average combined state and local sales tax rate is 8.86%. Ranked 11th on our list, Washington is one of the states with no income tax or sales tax.
10. Texas
Individual Income Tax Rate: 0%
State Sales Tax Rate: 6.25%
Texas does not charge an individual income tax or corporate income tax. It has an average combined state and local sales tax rate of 8.20%. Texas is one of the top states with no income tax or sales tax.
9. Florida
Individual Income Tax Rate: 0%
State Sales Tax Rate: 6%
Florida’s individual income tax rate is zero and it has a corporate income tax of 5.50%. The average combined state and local sales tax rate is 7.02%. Florida is one of the best states with no income tax or sales tax.
8. Ohio
Corporate Income Tax Rate: 0%
State Sales Tax Rate: 5.75%
Ohio charges individual income tax with rates ranging from 2.76% to 3.99%. Ohio has an average combined state and local sales tax rate of 7.24%. The state does not have corporate income tax but it levies a gross receipts tax. Ohio ranks among the states with no income tax or sales tax.
7. Oregon
Individual Income Tax Rate: 4.75%-9.90%
State Sales Tax Rate: 0%
Oregon does not charge state sales and local sales taxes. The state has an individual income tax which ranges from 4.75% to 9.90%. While its corporate income tax ranges from 6.60% to 7.60%. Oregon is one of the states with no income tax or sales tax.
6. South Dakota
Individual Income Tax Rate: 0%
State Sales Tax Rate: 4.50%
South Dakota does not have individual income tax and corporate income tax. South Dakota charges an average combined state and local sales tax rate of 6.40%. South Dakota makes it to our list of the states with no income tax or sales tax.
H&R Block, Inc. (NYSE:HRB), Intuit Inc. (NASDAQ:INTU), and CBIZ, Inc. (NYSE:CBZ) are some of the top software providers for tax management.
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Disclosure: None. 15 States with No Income Tax or Sales Tax is originally published on Insider Monkey.