No Income Tax States for Business Owners: What You Actually Save (and What You Don't)
Nine states impose no individual income tax: Alaska, Florida, Nevada, New Hampshire (interest and dividends only, fully repealed for 2025+), South Dakota, Tennessee (interest and dividends only, fully repealed for 2021+), Texas, Washington, and Wyoming. Business owners in high-tax states sometimes consider relocating to a no-income-tax state to reduce their overall tax burden. The savings can be significant, but they’re often smaller than expected because federal tax and self-employment tax (which are unchanged by state) make up the majority of most small business owners’ tax bill.
What moving to a no-income-tax state saves:
- State income tax on business profits (typically 3-13% depending on the origin state)
- State income tax on investment income, retirement distributions, and other personal income
What it doesn’t save:
- Federal income tax (10-37%), unchanged by state
- Self-employment tax (15.3%), unchanged by state
- State franchise or excise taxes that the new state may impose (Texas has a margin tax, Washington has a B&O tax, Nevada has a commerce tax for businesses over $4 million)
- Property taxes (Florida and Texas have relatively high property taxes that partially offset the income tax savings)
- Sales tax (most no-income-tax states have sales tax, some quite high)
The realistic savings: For a business owner with $200,000 in taxable income moving from California (13.3% top marginal rate) to Florida:
- State income tax savings: approximately $15,000-$20,000/year
- Federal + SE tax: approximately $55,000-$60,000 (unchanged)
- The state tax savings represent approximately 25-30% of the total tax burden, not 100%
Which no-income-tax states are best for business owners?
Does moving actually work?
The savings only apply if the business owner genuinely relocates. State tax authorities aggressively audit claims of domicile change. The business owner must:
- Establish domicile in the new state (driver’s license, voter registration, bank accounts, professional licenses)
- Spend the majority of days in the new state (many states count days)
- Move the business operations to the new state (office, employees, clients)
- File a final return in the old state and a part-year return if applicable
States like California and New York are particularly aggressive about “departure audits.” A business owner who maintains a home, an office, or significant client relationships in the old state may be treated as still domiciled there, regardless of the new state’s driver’s license.
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Yarik Yarosh, CPA. "No Income Tax States for Business Owners: What You Actually Save (and What You Don't)." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-state-income-tax-no-income-tax-states
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.