Your Guide to America's Most Tax-Advantaged States: 2025 Rankings Explained

When choosing where to establish a business or relocate, understanding state tax structures becomes crucial. The 2025 State Tax Competitiveness Index from the Tax Foundation—a respected research organization—provides an updated framework for evaluating tax environments across the nation. The analysis examines over 150 factors spanning five tax categories: individual income taxes, corporate taxes, sales and excise taxes, property and wealth taxes, and unemployment insurance taxes.

The Top 10 Tax-Advantaged States

Based on this comprehensive analysis, here’s the current ranking:

1. Wyoming – No individual income tax; ranks 7th in sales tax, 44th in property tax
2. South Dakota – No individual income tax or corporate income tax; 31st in sales tax, 10th in property tax
3. Alaska – No individual income tax or state sales tax; 5th in sales tax rank, 30th in property tax
4. Florida – No individual income tax; 14th in sales tax, 21st in property tax
5. Montana – 10th in income tax; exceptional 3rd in sales tax ranking, 18th in property tax
6. New Hampshire – 12th in income tax; leads the nation in sales tax efficiency
7. Texas – No individual income tax; 36th in sales tax, 40th in property tax
8. Tennessee – No individual income tax; 47th in sales tax (highest score), 33rd in property tax
9. North Dakota – 17th in income tax; 15th in sales tax, exceptionally 4th in property tax
10. Indiana – 16th in income tax; 17th in sales tax, 5th in property tax

The Pattern: Balancing the Tax Burden

A striking pattern emerges when examining these rankings. Six of the ten most tax-competitive states have eliminated individual income tax entirely—a defining characteristic of top performers. However, this doesn’t automatically translate to affordability across all metrics. States without income tax revenue must compensate through alternative taxation methods. Many substitute this revenue through elevated property taxes or sales taxes, creating a different tax structure rather than a universally lower burden.

The most successful states with no income tax and no sales tax—such as Alaska—have capitalized on alternative revenue sources. Similarly, states rich in natural resources can generate substantial income by taxing resource extraction and related economic activity, reducing their dependence on personal income taxation.

Geography and Tax Strategy

Wyoming, South Dakota, and Alaska occupy the top three positions, and these rankings reflect strategic policy choices influenced by their characteristics. As predominantly rural, sparsely populated regions, these states require less investment in large-scale infrastructure like public transportation systems. State policymakers maintain competitive low-tax environments to draw business investment, capital inflows, and population migration.

More populous states like Florida and Texas demonstrate that larger economies can also prioritize tax competitiveness. Lawmakers in these jurisdictions have made deliberate choices favoring lower taxes, though this often involves trade-offs in public service investments and government benefits.

What the Rankings Measure

The Tax Foundation’s methodology assesses individual income tax rates and design; sales tax structures and broadness of application; property tax burdens calculated as a percentage of personal income; and state-specific unemployment insurance taxes. Rankings reflect both rate levels and structural design considerations—neutral, broad-based tax systems score higher than narrow or economically distortive approaches.

The Takeaway

For both individuals and business owners evaluating relocation or expansion, these rankings highlight that states with no income tax and no sales tax offer distinct advantages, particularly when combined with moderate property tax burdens. The data reveals that tax competitiveness rarely results from a single policy but rather from a deliberate combination of low rates across multiple tax categories. States that consistently rank highest typically share one common strategy: prioritizing economically neutral tax structures while maintaining competitive overall rates.