North Dakota Emerges as America’s Most Tax-Friendly State

When Americans think of tax-friendly states, Texas and Florida usually come to mind. But a surprising contender has quietly entered the conversation: North Dakota. Leveraging billions of dollars in oil and gas revenue, the Peace Garden State has built one of the nation’s most competitive tax environments — keeping burdens low on residents while maintaining strong government finances.

The Oil Advantage

North Dakota’s rise as a tax-friendly state is fundamentally tied to the Bakken Shale oil boom that began in the late 2000s. The state sits atop one of the largest oil formations in the United States, and the extraction of oil and gas has generated billions of dollars in tax revenue, fundamentally reshaping the state’s fiscal landscape.

According to the latest available U.S. Census Bureau data, North Dakota ranked second in the nation for state and local tax collections per capita in 2023, bringing in $9,834 per resident. That might sound more like a high-tax state than a tax-friendly one — but the difference lies in where the money comes from.

Of the $7.72 billion collected by state and local governments that year, roughly $3.17 billion came from severance taxes on oil and gas production — accounting for about 41% of total tax revenue. This unique revenue structure means that much of the tax burden falls on energy companies rather than individual residents.

Low Income Taxes, High Competitiveness

While North Dakota collects all major tax types, including property, sales and income taxes, it relies far less on income taxes than many other states. Individual income taxes accounted for just 6.4% of total revenue in 2023, while corporate income taxes made up 4.2%.

North Dakota’s income tax rates range from 0% to 2.5% under a graduated system, among the lowest in the nation for states that levy an income tax. The state also has no county or municipal income taxes, further reducing the burden on residents.

As National Tax Reports notes, the state’s 0% starting bracket benefits lower-income taxpayers, and the overall tax burden is considered exceptionally low compared to other states.

Expert Analysis: Migration Trends

Nicole Fox, senior policy analyst at the nonpartisan Tax Foundation, told Fox News Digital that the group’s analysis of IRS migration data points to a clear trend.

“States that have experienced net in-migration are states with more competitive tax structures and lower overall costs of living,” Fox said.

This observation aligns with broader national patterns. IRS migration data shows Americans moving from high-tax states like California, New York, and Illinois to lower-tax states — a trend that has long benefited Texas, Florida, and Tennessee, and now potentially North Dakota.

A National Security Argument for Energy

The intersection of tax policy and energy production was highlighted by Treasury Secretary Scott Bessent, who spoke at the Petroleum Club of Houston last week. Bessent contrasted California’s approach unfavorably with energy-producing states.

“In California, I saw firsthand what years of failed governance looks like: a tax system that is hostile to ambition. A regulatory state that smothers enterprise. An economic climate indifferent to consequence,” Bessent said in remarks shared with Fox News Digital.

“Here in Texas, meanwhile, the contrast is so striking that it begins to feel like a tale of two states.”

Bessent added: “More than strengthen an economy, energy abundance also secures a nation. Economic security is national security.”

Caveats and Considerations

While North Dakota’s tax model is impressive, it comes with important caveats. The state’s reliance on oil severance taxes makes it vulnerable to energy price volatility — a downturn in prices could create budget shortfalls, as seen in 2015-2016.

Additionally, while the “tax-friendly” label applies to resident income taxes, North Dakota’s overall per-capita tax collections are the second-highest in the nation. Critics might argue that labeling a state with such high per-capita collections as “tax-friendly” is misleading.

What This Means for the Future

North Dakota’s model offers a broader lesson for state policymakers: strong revenues can be used to lower tax burdens and strengthen state finances rather than fuel spending increases. While few states can replicate North Dakota’s oil wealth, the principle of using revenue windfalls to reduce tax burdens on residents is applicable almost anywhere.

As the affordability crisis continues to reshape migration patterns across the United States, North Dakota’s emergence as a tax-friendly contender could challenge the long-standing dominance of Sun Belt states — though its cold climate and remote location may limit its appeal compared to Texas and Florida.

For now, North Dakota has quietly built one of America’s most competitive tax systems, and the rest of the country is starting to take notice.