How to Rank States for Self-Employed Workers

When I rank states for self-employed clients, the analysis is never just "no income tax good, income tax bad." Nine states have no personal income tax — but some of those (Washington, Texas, Ohio's BID notwithstanding) make up the difference through gross-receipts taxes, high sales tax, or property tax. The right state depends on what kind of self-employment income you earn, where your customers live, and whether you own real estate.

The four factors I weigh:

  • Top marginal personal income tax rate — the headline number, applied to Schedule C net profit.
  • Gross receipts or franchise tax — levies on revenue rather than income, which hit loss-making businesses.
  • Combined state and local sales tax — affects both what you collect from customers and what you pay on equipment.
  • Property tax — relevant only if you own, but high-property-tax states can erase the income tax savings.

The No-Income-Tax States

Nine states levy no personal income tax: Alaska, Florida, Nevada, New Hampshire (no wage tax, but taxes interest and dividends through 2024), South Dakota, Tennessee, Texas, Washington, and Wyoming. For self-employed workers, the practical top-tier list narrows to Florida, Nevada, Texas, Washington, Tennessee, and Wyoming — New Hampshire and South Dakota have niche tax structures.

StateIncome TaxGross Receipts / FranchiseCombined Sales Tax
Wyoming0%None5.22-6.5%
Nevada0%Modified Business Tax (0.5% payroll)6.85-8.375%
Florida0%5.5% corp tax (C-corps only)6-7.5%
Tennessee0% on wagesFranchise (0.25% net worth) + Excise (6.5%) on entities7-9.55%
Texas0%0.375% (retail) / 0.75% (other) over $1.23M6.25-8.25%
Washington0%B&O 0.471-1.5% on gross receipts7-10.4%

Wyoming is the cleanest case — no income tax, no gross receipts tax, low sales tax, low property tax. For high-earning self-employed workers willing to live in a rural state, Wyoming is unmatched. Florida is the most popular no-income-tax destination for east-coast freelancers, but watch the $100,000 sales tax nexus threshold. Texas absorbs California refugees but the franchise tax catches LLCs and partnerships at $1.23M of revenue. Washington has the most aggressive gross-receipts structure — I caution service businesses against Seattle specifically.

The Low-Income-Tax States

Several states have moved to flat taxes below 5.25%: North Carolina at 4.25%, Georgia at 5.19%, Pennsylvania at 3.07%, Michigan at 4.25%, Indiana at 3.05%, and Arizona at 2.5%. Ohio's 2.76-3.5% brackets combined with the $250,000 Business Income Deduction make it effectively tax-free for most self-employed filers.

Pro Tip: The "best" state depends on your revenue model. Service businesses with no in-state customers do best in Wyoming, Nevada, or Texas. Sellers of taxable goods should consider North Carolina or Georgia — lower income tax plus moderate sales tax with $100,000 nexus thresholds. High-earning service providers in cities should compare Washington's B&O tax (1.5% on services) carefully against a flat 4.25% income tax in North Carolina.

The High-Tax States to Avoid

California (13.3%), New York (10.9% + NYC 3.876%), New Jersey (10.75%), Hawaii (11%), and Oregon (9.9%) top the marginal-rate list. A self-employed consultant earning $300,000 pays roughly $25,000 more in California state tax than in Florida — a difference that compounds across a career. The high-tax states also tend to have aggressive audit divisions and complex nonconformity adjustments that drive up compliance costs.

Run the Numbers Before You Move

Relocating across state lines to save tax only pencils out if the move is real. California's residency audits catch fake moves; New York's domicile test is even stricter. Maintain clean records of the new domicile — driver's license, voter registration, lease or deed, time-in-state logs — before claiming the lower-tax state as your residence. A part-year resident return on Form 540 (CA) or IT-203 (NY) is the right filing for the transition year.

Compliance Warning: Sales tax nexus is based on where your customers are, not where you live. Moving from California to Texas saves you personal income tax but does NOT eliminate California sales tax collection duties if you still sell to California customers. A freelancer with $200,000 in California digital sales still must register with the CDTFA and collect 7.25-10.75% from buyers. Plan multi-state compliance alongside any relocation.

The Bottom Line

Wyoming, Nevada, and Florida are the cleanest no-income-tax states for self-employed workers; Texas and Washington have meaningful gross-receipts or franchise taxes on entities. North Carolina (4.25%), Ohio (effective 0% under the $250k BID), and Georgia (5.19%) lead the low-flat-tax tier. California, New York, New Jersey, Hawaii, and Oregon sit at the bottom of the rankings. Run federal SE tax with the Self-Employment Tax Calculator and project multi-state sales tax collection duties with the Sales Tax Calculator before any move.