About States With No Income Tax
There are seven American states that have no state income tax. They are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. There are two more states that tax personal income for interest and dividends, but not on wages. These states are New Hampshire and Tennessee.
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Significance
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State income tax is levied by 41 states on wages and salary. Forty-three states also levy state income tax on interest and dividend income. These state income taxes must be paid in addition to federal taxes, payroll taxes and local taxes. The amount of state income tax levied by these states can be a significant portion of a taxpayer's income. For example, state income tax in California can be a maximum of 10.3 percent. Living in a state with no state income tax provides a significant tax savings.
Benefits
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The two states with the fewest state income taxes are Wyoming and Nevada. They have none of any kind. They do not tax income, interest, dividends or capital gains. They also do not tax retirement income earned and received from another state. They also do not have a state corporate income tax. Nevada offsets its lack of a state corporate income tax with taxes on casinos.
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Types
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Several states do not levy state income taxes on personal income, interest, dividends or capital gains but do have a state corporate income tax. These states include Alaska, South Dakota and Washington. The state corporate income tax in South Dakota is specific to financial institutions. Washington calls its state corporate income tax a Business and Occupation Tax. It applies to most companies doing business in the state but the tax rate varies depending on the industry.
Features
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Florida and Texas have specific language in their state constitutions limiting state income tax. The constitution of Florida specifically bans personal income tax. Florida got rid of its state income tax on interest, dividends and capital gains in 2007. It does have a state corporate income tax. The constitution of Texas makes it very difficult for the state to levy any personal income taxes. It only started taxing some businesses in 2006.
Function
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New Hampshire and Tennessee do not have a state income tax for wages and salary. However, both states levy state income taxes on interest and dividend income. They do have state income taxes for businesses.
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