The hidden costs of low-tax states

Data: U.S. Census; Note: Data for Hawai'i and Alaska starts in 1955 and 1957, respectively; Chart: Erin Davis/Axios Visual

America's state governments now run on two very different tax engines: income in many coastal and professional-class states, and consumption in much of the Sun Belt and low-tax-growth belt.

Why it matters: States are not just competing over tax rates. They've built systems around which parts of the economy to tax, and which residents feel it most.

States marketing themselves as low-tax havens often still collect heavily through shopping, gas, insurance, tourism and other transactions, while many blue and purple states rely more on wages, capital gains and corporate profits.

By the numbers: In 2025, 27 states got their biggest share of tax revenue from sales and gross receipts taxes, while 21 relied most heavily on income taxes, individual and corporate combined, according to an Axios analysis of new Census state tax data.

The most sales-dependent states were Texas at 86.6% of state tax revenue, South Dakota at 83.1%, Florida at 80.3%, Tennessee at 79.4%, Washington at 74.6% and Nevada at 73.9%.

The most income-dependent states were Oregon at 71%, New York at 67%, Massachusetts at 66.8%, California at 61.1% and Connecticut at 59.5%.

State of play: The U.S. tax map has been remade over the past century.

When the Census Bureau began collecting state government finance data in 1902, there were no state sales taxes on general sales, tobacco, motor fuel or alcohol.

By 2025, every state collected some kind of general or selective sales and gross receipts tax, and those taxes made up 45.4% of state tax revenue nationally.

Zoom in: Texas and Florida, two of the country's no-income-tax growth states, are also two of the most consumption-tax-reliant state governments in America.

That means their state budgets are less directly tied to residents' paychecks and more tied to spending, tourism, fuel, insurance and business activity.

The other side: California, New York, Massachusetts and Connecticut depend heavily on individual and corporate income collections.

That makes their budgets more exposed to high earners, business profits, bonuses and market swings.

Yes, but: The divide is not perfectly partisan. Washington, a deep-blue state with no broad-based personal income tax, relied on sales and gross receipts taxes for 74.6% of state tax revenue in 2025, an Axios analysis found.

New Hampshire, a politically mixed state, had the nation's highest corporate net income tax share, at 32.9% of state tax revenue.

Friction point: The shift toward consumption taxes could make state tax systems feel lighter for high earners while taking a bigger bite from lower-income families.

Because Black and Hispanic households are disproportionately represented among lower-income and lower-wealth Americans, the tax divide among states could quietly reinforce racial inequality.