Nine US states do not charge personal income tax in 2026: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For LLC owners, this is often framed as an automatic tax advantage. It is not that simple.
Your LLC’s taxation depends on where you personally live, where the LLC earns income, and what federal election you make. Forming an LLC in Wyoming does not exempt a California resident from California income tax on that LLC’s earnings. Here is how it actually works, state by state.
How LLC taxation works by default
By default, the IRS treats an LLC as a pass-through entity. The LLC itself does not pay federal income tax. Income passes through to the members, who report it on their personal returns. State income tax follows the same pattern: the state where the member lives taxes that member’s share of the income, not the state where the LLC was formed.
So if you live in California and form an LLC in Wyoming, California taxes your share of the LLC’s income at California rates. Wyoming’s zero-income-tax status does not help you unless you are a Wyoming resident.
Where “no income tax” states do help: if you are already a resident of one, or planning a move to one, your LLC’s pass-through income avoids state income tax at the personal level. That can be a substantial saving.
The 9 states and how each handles LLCs
Alaska
No personal state income tax. Corporate income tax applies only if your LLC elects C-corporation treatment. Alaska has a biennial report filing fee of $100. For most small LLCs, Alaska’s tax environment is effectively zero state tax at the entity level.
Florida
No personal state income tax. Florida does impose a 5.5% corporate income tax on C-corporations, but pass-through LLCs avoid it. Florida’s annual report fee is $138.75. Sales tax is 6% statewide with local add-ons bringing typical rates to 7-8%.
Nevada
No personal state income tax and no corporate income tax. Nevada’s commerce tax applies only to businesses with Nevada gross revenue over $4 million per year, so most small LLCs pay nothing at the state level. The trade-off is higher recurring fees: $350 per year in state business license and annual list filing.
New Hampshire
New Hampshire completed its phase-out of the Interest and Dividends Tax at the end of 2024. As of 2026, New Hampshire has no personal income tax. However, the state has a Business Profits Tax (7.5% on net business income over $92,000) and a Business Enterprise Tax (0.55%) that apply to LLCs above certain thresholds. Small LLCs typically fall below the thresholds and owe neither.
South Dakota
No personal state income tax and no corporate income tax. South Dakota’s annual report fee is $50. The state’s trust laws make it popular for holding entities, and its tax code is one of the simplest in the country.
Tennessee
Tennessee fully repealed the Hall Tax (on interest and dividends) in 2021, leaving the state with no personal income tax. Tennessee does impose a franchise tax and an excise tax on LLCs that exceed certain thresholds. The franchise tax is $100 minimum, 0.25% of the greater of net worth or book value of Tennessee property. The excise tax is 6.5% of net Tennessee earnings.
Texas
No personal state income tax. Texas does impose a franchise tax on LLCs with annualized revenue above the no-tax-due threshold (published annually by the Texas Comptroller). Rates are 0.375% for retail and wholesale and 0.75% for other entities, calculated on taxable margin. Small LLCs below the revenue threshold owe a no-tax-due report but pay nothing.
Washington
No personal state income tax in the traditional sense, but Washington added a 7% capital gains tax on gains above $250,000 per year in 2022. For most LLC members, this does not apply unless they have large investment gains outside the LLC. Washington also has a Business & Occupation (B&O) tax on gross receipts, typically 0.471% for services and 0.484% for retail. B&O applies to LLC revenue, not profit, so it can be significant for low-margin businesses.
Wyoming
Wyoming has no personal income tax, no corporate income tax, and no franchise tax on LLC income. The annual report fee is the greater of $60 or $0.0002 per dollar of assets located in Wyoming. For an LLC with no physical Wyoming presence, that is $60 per year. This is the most favorable state tax environment for an LLC in the country.
Comparison table
| State | Personal Income Tax | LLC-specific State Tax | Annual State Fee |
|---|---|---|---|
| Alaska | None | None on pass-through | $100 (biennial) |
| Florida | None | None on pass-through | $138.75 |
| Nevada | None | Commerce tax if rev > $4M | $350 |
| New Hampshire | None (as of 2025) | BPT/BET if above thresholds | $100 |
| South Dakota | None | None | $50 |
| Tennessee | None | Franchise + excise tax | $300+ |
| Texas | None | Franchise tax (if above threshold) | $0 (for most small LLCs) |
| Washington | None* | B&O tax on gross receipts | $60-$90 |
| Wyoming | None | None | $60 minimum |
*Washington has a capital gains tax on gains above $250,000 per year.
Residency is what actually matters
The headline “no income tax” applies only if you are a resident of that state. Moving your LLC’s formation to Wyoming while you live in New York does nothing for your state tax bill. New York will tax your share of LLC income regardless of where the LLC is formed.
To actually benefit from a no-income-tax state, you need to:
- Establish residency in the state (driver’s license, voter registration, primary home, time spent in-state).
- Dissolve or reduce ties to your prior state (states like California and New York aggressively audit residency changes).
- File a final part-year return in the old state and full-year returns in the new state going forward.
If you are not moving, the question is whether forming your LLC in a no-income-tax state saves you anything. Usually the answer is no: you still pay income tax where you live, and you may also pay a foreign LLC registration fee in your home state for operating there.
When forming in a no-income-tax state makes sense anyway
Even without residency, forming in a no-income-tax state can make sense if:
- The LLC is a passive holding entity with no operating presence in your home state. For example, a Wyoming LLC holding intellectual property that licenses to operating entities elsewhere.
- You are a remote worker with flexible residency. Establishing domicile in Florida or Texas while running an LLC there is a common move for consultants and digital business owners.
- You plan to move to the state within 12-24 months and want the LLC in place before you relocate.
- You want the privacy or charging-order protection that some of these states offer, and the tax situation is a secondary factor.
Frequently asked questions
Can I avoid state income tax by forming my LLC in Wyoming?
Not unless you are a Wyoming resident. Your home state taxes LLC pass-through income based on where you live, not where the LLC is formed.
Which no-income-tax state is cheapest for an LLC?
South Dakota ($50 annual) and Wyoming ($60 annual) are the cheapest on recurring fees. Texas has no recurring fee for LLCs below the franchise tax threshold, making it effectively $0 per year for many small businesses.
Do I still pay federal income tax if I am in a no-income-tax state?
Yes. Federal income tax applies regardless of state. LLCs pass through to personal returns by default (unless you elect C-corp), so you pay federal income tax on your share of LLC income at your ordinary rate.
What about the Texas franchise tax?
Texas has no personal income tax but does have a franchise tax on LLCs with revenue above a published threshold. For small LLCs below the threshold, you still file an annual no-tax-due report but owe nothing. See our Texas LLC tax guide for specifics.
This article is for educational purposes only and does not constitute tax or legal advice. State tax rules change annually. Verify thresholds and rates with each state’s Department of Revenue and consult a CPA for your situation.