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How do states with no state income tax like Florida or Texas generate tax revenue? Do they have higher property tax or sales tax?

I compared their property and sales taxes with other states with income tax (such as Ohio or Virginia) and they are relatively the same.

Rodrigo de Azevedo
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3 Answers3

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You can find revenue breakdowns online, as this is generally all public information. It mainly only gets confusing depending on how the breakdown is done and the names given to them (e.g. sales tax, excise tax, ad valorem tax; are they all grouped together, or what?)

Texas

Here's some breakdowns of the 2004 state revenues. Approximately a third of their income comes directly from the Federal government (note that all states receive Federal funds; prosperous states, like Texas, pay more in taxes than they receive; though when I say this I do not account for direct payments to residents, such as Medicare and Social Security, only grants to the State itself). Of the non-Federal income, the biggest contributor is the sales tax, at about 40% of non-Federal income. Taxes on vehicles and fuel another 14%, and revenue from licenses, fees, permits, fines, and penalties is about another 14%. Texas also taxes the production of the oil industry, and has a corporate income tax (the "Franchise tax" you see in the link).

Nevada

Nevada, better known as that place where Las Vegas is found, has an economy heavily dependent upon tourism, casino income in particular. A breakdown of their 2019-2020 revenue can be found here. Sales taxes and gaming revenues account for nearly 46% of non-Federal state revenue. Nevada's yearly budgets are currently in the rough neighborhood of $30 billion, about $10 billion of which comes from the Federal fund.

Florida

Florida is another tourism heavy economy, and they get in the neighborhood of an astonishing 80% of their non-Federal revenue from sales taxes; about a third of the state budget comes from the Federal fund. All property taxes in Florida are, per the state constitution, reserved entirely for local governments.

zibadawa timmy
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    Florida has a 5.5% corporate income tax. https://www.stateofflorida.com/taxes/#:~:text=There%20is%20no%20personal%20income,(unless%20they%20are%20exempt). So does Texas which calls its business income tax a "Franchise Tax". https://comptroller.texas.gov/taxes/ – ohwilleke Apr 20 '21 at 19:41
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    interesting, so Florida and Nevada are tourist heavy, and Texas gets sort of 'welfare payments from Fed heavy'? Also, you gave the wrong link : ) check the link for "2004 state revenues", I see this https://www.skyatnightmagazine.com/space-science/how-did-saturn-moon-titan-form/ anyways, I wonder why California needs high taxes, they could rely on tourism and welfare payments? who knows, thanks for the info, maybe we can compare to why California and New York need high taxes, when they are tourist heavy, strange –  Apr 20 '21 at 20:44
  • hi @ohwilleke interesting, California has a 8% income tax, https://businessportal.sfgov.org/manage/pay-taxes/state-taxes. the reason, I am asking is, I live in California, and curious how Texas and Florida get away with it, I am in a tourist state, and have to pay higher state income tax –  Apr 20 '21 at 20:46
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    Nevada also has a business tax and a gaming revenue tax. https://tax.nv.gov/Publications/Taxation_Revenue_Statistics/ Texas is also taking a piece of oil and gas production revenues. Tourism relative to population size in California and Texas is pretty modest, although it is huge in Nevada (which also has a lodging tax that generates lots of revenue) and moderate in Florida. – ohwilleke Apr 20 '21 at 22:47
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    @mattsmith5 California is a victim of Prop 13 which decimated local revenues from property taxes. One consequence of that is that local budgets need to be supplemented by revenues from the state general fund which gets supplied mostly through state income taxes and sales taxes. – Don Hosek Apr 21 '21 at 03:15
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    @Don Hosek: One could equally well say that California is a victim of excessive government spending. In 2017, it spent $6,676 per capita, vs Florida's $3,838 and Texas' $4,392. (Per https://ballotpedia.org/Total_state_government_expenditures ) – jamesqf Apr 21 '21 at 03:33
  • someone needs to write a comparative essay, between all these states, thanks all for the info –  Apr 21 '21 at 04:32
  • @mattsmith5 Oops, keyboard must've lagged out or something. Should be the intended link now for Texas. As for Federal funding, in all of the ones I listed the Federal Fund is about a third of their budget, which is probably not a coincidence but I'd have to look into the particulars of that. Texas, to my understanding, is quite prosperous as a state overall and pays significantly more in federal taxes than they receive in total federal grants. California also pays more than it receives. But other states, like Mississippi, do take more than they give. – zibadawa timmy Apr 21 '21 at 10:35
  • Tourist states like Nevada and Florida are basically getting visitors from other states to subsidize their residents through the corporate taxes. – Barmar Apr 21 '21 at 15:01
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    @mattsmith5 "Texas gets sort of 'welfare payments from Fed" I wouldn't call these 'welfare payments' when you consider where the money from the Fed comes from, i.e. it comes from the peoples federal income taxes. So it is really just a portion of their taxes that are being returned by the feds, not welfare. – Glen Yates Apr 21 '21 at 18:32
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    @GlenYates And it also applies to all states, not just some. Granted, some of it literally is in the form of welfare payments (e.g. for Medicaid,) but a lot of it is also stuff like grants for highways, education, etc. Incidentally, states like New York, California, and Massachusetts also disproportionately benefit from the federal income tax deduction for state and local taxes, which are much higher per capita in those states than in most others (which is why they're the ones who complained so loudly when those deductions were capped to mostly just apply to middle-class and down.) – reirab Apr 21 '21 at 20:34
  • According to the Rockefeller Government Institute data all three of these states receive more from the federal government than they pay. One thing that I'm not following about it is that the total amount it shows going to 'receiving' states is far greater than the total amount coming from 'paying' states. Maybe that's explained somewhere in the full report but I don't have time search for it. Federal deficit? – JimmyJames Apr 22 '21 at 17:24
  • @JimmyJames That data includes money sent directly to citizens, via things like social security; we're talking about money sent to the States themselves. The Texas Comptroller says for 2016 the Fed grants were only about 15% of total taxes paid to them by Texans. That's always the difficulty in understanding these data, as exactly what counts as what seems to be comprehensible only to the tax professionals, and even then it sometimes feels like a case of "depends on the author". – zibadawa timmy Apr 22 '21 at 17:40
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    @JimmyJames If you look at your Rockefeller site and click the second tab at the top, Per Capita Expenditures and Receipts, you can look up Texas with a drop down on the right (I think it defaults to New York), and you'll see one of the entries (for any state) concerns Direct Payments, such as for social security and medicare and other individual entitlements that aren't handled by states themselves. – zibadawa timmy Apr 22 '21 at 17:42
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    @JimmyJames Which I think says that a place like Texas has very little in the way of social safety nets and its residents are almost wholly dependent upon the federal government for that. Which makes sense insofar as Texas tends to be conservative and pro small government, though it's (un?)ironically backfiring by increasing Federal dependencies and thereby bloating the Federal government over more readily controlled local/state governments and programs. But that's another topic of facts and opinions. – zibadawa timmy Apr 22 '21 at 17:49
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    @zibadawatimmy OK I see your edit which clarifies the situation. Yes, I find it a little ironic that a state like Texas with a politically dominant image of rugged individualism and independence sucks at the teat of the federal government both at the state and individual level with states like CA and NY footing the bill. But we digress. – JimmyJames Apr 22 '21 at 18:20
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It will vary case to case, but there's a number of available revenue streams for U.S. states that have no income taxes (personal, corporate, or both):

Property taxes, as you suspect, are often higher but these are levied by municipalities and tend to make up for what would otherwise be funding flowing from the State-level government to the municipalities for things like schools, &c.

Sales taxes are also common, though some states (I live in Massachusetts, so New Hampshire is a perennial example here), have no sales tax.

Excise taxes are also common in one form or another. In the United States these are most commonly, gas taxes, tobacco taxes, alcohol taxes, and so on - these are assessed to the merchant, and so are invisible to the consumer which is why they're kept separate from sales taxes.

There's something called an 'excise tax' which is assessed to the consumer, and so isn't actually an excise tax, but instead a property tax, which is assessed on owned motor vehicles.

Down in the weeds there's stuff like license fees (hunting, fishing, driving, etc.), service charges (what you pay when visiting a state park to go camping, for example), estate taxes, property seized through civil forfeiture, abandoned property held in trust, and other financial esoteria.

Each state will address their budget in their own way, so which of these tools is used how much will vary.

William Walker III
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    Texas has high property taxes, and while those taxes are levied at the county level, the way they are spent effectively makes them a state tax. The biggest percentage of property tax goes the local public school district, but depending on where you live, much of that property tax may be diverted to other school districts in the state. – user100464 Apr 21 '21 at 16:00
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    There are also 'excise taxes' that are essentially just income taxes for businesses. Just because a state has no personal income tax doesn't mean it has no business income tax. For example, my state of Tennessee has no personal income tax, but does have an excise tax of 6.5% on all net business income. – reirab Apr 21 '21 at 20:47
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It's not clear exactly what you're asking here, but states without income tax do make less in income from taxes overall. E.g. (from Wikipedia)

enter image description here

That graph is alas not per capita, but it's clear that CA made more even in that perspective compared to TX, as CA's population (around 39M) isn't twice that of Texas (28M or so), but CA's tax revenue practically was double that of TX, at least in the year considered there. Also NY state [with around 19M pop.] made more tax income than TX.

The Tax Policy Center has this calculated per year; their most recent figures are from 2017; CA had $6171 tax revenue pe capita; Texas $4161. So there's no free lunch for generating state income. It's also true that CA also spends more per capita than TX, about 50% more, according to ballotpedia, i.e. $6676 vs $4392.

the gods from engineering
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