State tax is a financial charge or levy imposed by a U.S. state government on individuals or businesses within its jurisdiction. The collected revenue typically supports public services and infrastructure.
In detail, state tax can take various forms including income tax, sales tax, property tax, and corporate tax. The rate and type of state taxes can vary significantly from one state to another. Some states, for example, have no income tax, while others have high rates. As a founder, understanding the state tax laws where you're operating is essential, as they can significantly impact both your personal finances and the finances of your company.
Common Types of State Taxes
1. State Income Tax
- Applies to wages, business income, or investment income earned in the state.
- States without income tax: Texas, Florida, Nevada, Washington, Wyoming, South Dakota, Alaska, Tennessee (no tax on wages).
- Brackets, credits, and filing rules vary widely.
2. State Sales Tax
- A tax added to the sale of goods—and in some states, services.
- No state sales tax: Alaska, Delaware, Montana, New Hampshire, Oregon.
- Rates can include additional city or county sales taxes.
3. State Payroll Taxes
- Employer obligations related to employees, including:
- State income tax withholding (if applicable)
- State unemployment insurance (SUTA/SUI)
- Disability or Paid Family Leave in certain states
- Separate from federal payroll taxes (Social Security and Medicare).
4. Property Tax (Locally Assessed, State-Regulated)
- Tax on real property such as land and buildings.
- Typically funds schools, public safety, and local infrastructure.
5. Corporate or Business Entity Taxes
- Some states charge corporate income tax, franchise tax, or gross receipts tax.
- Rates and structures vary—important for founders choosing where to register or expand.
How States Differ from Each Other
| Type of State Tax |
Who Pays It |
What It Covers |
Which States Apply It |
Why It Matters for Founders |
| State Income Tax |
Individuals + some business entities |
Tax on wages, business income, investment income |
41 states (not in: TX, FL, NV, WA, WY, SD, AK, TN) |
Affects payroll, founder compensation, and tax planning for your business structure. |
| State Sales Tax |
Consumers (collected by businesses) |
Tax on purchase of goods and sometimes services |
45 states + D.C. (not in: AK, DE, MT, NH, OR) |
Impacts pricing, invoicing, ecommerce, and how you handle tax collection + remittance. |
| State Payroll Taxes |
Employers (and sometimes employees) |
Income withholding, unemployment insurance, disability, PFML |
All states for SUTA/SUI; only some for disability/PFML |
Directly affects payroll setup, employee onboarding, and compliance reporting. |
| Property Tax |
Property owners (business or personal) |
Tax on land, buildings, equipment (in some states) |
All states, administered locally |
Influences decisions on office space, warehouses, and business-owned real estate. |
| Corporate / Business Taxes |
Corporations or registered entities |
Corporate income tax, franchise tax, or gross receipts tax (varies) |
Most states (exceptions differ by tax type) |
Impacts entity selection, where to incorporate, and multistate filing obligations. |
