Seven States with no State Income Tax only Two more States needed to Convention of State Income Tax Removed but Cannot Remove Federal Income Tax

How states make money with no income tax
Let's go through the states with no income tax one by one using the Tax Foundation's most recent data, which is for 2010. The Tax Foundation has been collecting data on taxes since 1937 and its data takes into consideration an average of both state and local taxes.

1. Alaska
Alaska is known for its pristine wildlife as well as its oil and gas resources, most notably its North Slope with the famous Prudhoe Bay oil field. Alaska funds itself with royalties from oil and gas production as well as a 9.4% corporate income tax rate. In 2012 oil and gas royalties made up 83% of the state's revenue and oil and gas corporate income taxes made up just under 8% of revenue. The state has no sales tax but local municipalities have varying sales taxes and property taxes. In 2010, per capita property tax was $1,865, and combined with all other taxes, the per capita state and local tax paid was $3,214 according to the Tax Foundation.

Those 65 and over should note that Alaska exempts senior citizens from the first $150,000 of assessed value for property taxes.

2. Florida
Florida is known for its great weather (minus hurricanes), tourism, and snowbirds. Florida funds itself with a 6% sales tax as well as a 5.5% corporate income tax. The sales tax made up 73% of the state's revenue in fiscal year 2011-2012, with the corporate income tax making up 8.3%.

In 2010, per capita property tax was $1,507, and combined with all other taxes, the per capita state and local tax paid was $3,728 according to the Tax Foundation.

3. Nevada
Nevada is obviously best known for gambling and tourism. The state funds itself through a 6.85% sales tax. In the 2011-2012 fiscal year, sales and use taxes made up 71% of the state's revenue. The state has no corporate income tax, which has helped it attract tech companies and start-ups from high-tax California. Many companies take advantage of the lack of a corporate income tax, and Las Vegas in particular is attracting start-ups through the efforts of Zappos' CEO Tony Hsieh's DowntownProject. In 2010, per capita property tax was $1,297, and combined with all other taxes, the per capita state and local tax paid was $3,297 according to the Tax Foundation.

4. South Dakota
South Dakota is known for Mt. Rushmore, Badlands National Park, and Wall Drug. (Have you dug Wall Drug?) The state funds itself through a 4% sales and use tax, a $0.22-per-gallon gas tax, and fees on vehicles, but has no corporate income tax. In fiscal year 2012 the sales and use tax made up 65% of the state's revenue, motor fuel tax made up 8%, and car titles and registration fees made up another 8%. In 2010, per capita property tax was $1,142, and combined with all other taxes, the per capita state and local tax paid was $3,035 according to the Tax Foundation.

5. Texas
Texas funds itself through a 6.25% sales tax, taxes on motor vehicle sales and fuel, a 0.5%-1% franchise tax, and taxes on oil and natural gas production. In fiscal 2012 the sales tax made up 39% of the state's revenue, motor vehicle sales and fuel taxes made up 10.8%, franchise taxes made up 7.3%, and taxes on oil and natural gas made up 5.8%. In 2010, per capita property tax was $1,292, and combined with all other taxes, the per capita state and local tax paid was $3,104 according to the Tax Foundation.

6. Washington
Washington funds itself through a 6.5% sales tax and a gross receipts tax on businesses. Washington benefits from being surrounded by Idaho and Oregon, both of which have corporate income tax rates above 7% and individual income tax rates above 7%. In fiscal 2012 the sales tax made up 64.7% of revenue while the gross receipts tax contributed 17.6%. In 2010, per capita property tax was $1,257, and combined with all other taxes, the per capita state and local tax paid was $4,261 according to the Tax Foundation.

7. Wyoming
Wyoming funds itself through a 4% sales tax, taxes on natural resources production, as well as property taxes, which for residential property is 9.5%. Most of the state's revenue comes from its natural resource production and property taxes on resource owners. In 2010, per capita property tax was $2,663, and combined with all other taxes, the per capita state and local tax paid was $3,721 according to the Tax Foundation.