A new analysis reveals that states marketing themselves as low-tax havens often collect heavily through consumption taxes rather than income taxes. The data, drawn from U.S. Census figures and analyzed by Axios, shows a fundamental divergence in how states fund themselves.
America's state governments now run on two distinct tax engines: income in many coastal and professional-class states, and consumption in much of the Sun Belt and low-tax-growth belt. This divide means states are competing not just over tax rates, but over which parts of the economy to tax — and which residents feel the burden most.
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 Axios. The most sales-dependent states included 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%.
These consumption-heavy systems disproportionately impact lower-income residents who spend a larger share of their earnings. Meanwhile, blue and purple states relying on income taxes can extract more revenue from wages, capital gains, and corporate profits.
The trade-offs are significant but often invisible to residents focused solely on the absence of a state income tax.