North Dakota Rises as Surprising Tax-Friendly Contender

When Americans think of tax-friendly states, Texas and Florida usually come to mind. But a quiet contender has emerged from the northern plains: North Dakota. Thanks to billions in oil and gas revenue, the Peace Garden State has built one of the nation’s most competitive tax systems — and it may soon overtake the traditional low-tax leaders.

According to the Tax Foundation’s 2026 State Tax Competitiveness Index, North Dakota now ranks 11th overall among all 50 states, placing it just outside the top 10 and ahead of several states that forgo income taxes entirely. The index evaluates states on over 150 variables across corporate, individual income, sales, property, and unemployment insurance taxes.

How North Dakota Does It

North Dakota’s formula is unique. Rather than eliminating income taxes as Texas and Florida have done, the state maintains low income tax rates — ranging from 1.10% to 2.50% — while deriving the lion’s share of its revenue from oil and gas severance taxes.

Data from the Tax Foundation’s North Dakota page shows that of the $7.72 billion collected by state and local governments in 2023, roughly $3.17 billion — about 41% — came from severance taxes on oil and gas production. Individual income taxes accounted for just 6.4% of total revenue, while corporate income taxes made up 4.2%.

“States that have experienced net in-migration are states with more competitive tax structures and lower overall costs of living,” Nicole Fox, a policy analyst at the Tax Foundation, told Fox News Digital.

A Tale of Two Tax Models

North Dakota’s approach stands in stark contrast to high-tax states like New York and California, which rely heavily on income taxes to fund government operations. Treasury Secretary Scott Bessent highlighted this divide during remarks at the Petroleum Club of Houston.

“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, according to remarks shared with Fox News Digital.

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

The Numbers Behind the Rankings

North Dakota’s tax competitiveness extends across multiple categories. The state ranks 6th nationally in property tax structure, 11th in corporate taxes, and 17th in sales taxes, according to the Tax Foundation index. It also has no estate tax or inheritance tax, and its corporate income tax rate is a flat 4.31%.

Interestingly, North Dakota ranks second in the nation for state and local tax collections per capita at $9,834 per resident — a figure that might suggest a high-tax state. But as Newsweek reported on the Tax Foundation’s findings, the source of that revenue matters: much of it comes from oil production rather than residents’ paychecks.

Broader Implications

North Dakota’s model offers a potential template for other resource-rich states, though few can replicate the scale of its oil revenue from the Bakken Shale formation. The broader lesson, according to tax experts, is that revenue windfalls can be used to lower tax burdens and strengthen state finances rather than fuel spending increases.

The Tax Foundation’s analysis of IRS migration data shows a clear national pattern: Americans are moving from high-tax states like New York, California, and Illinois to states with more competitive tax structures and lower costs of living. North Dakota’s emergence as a tax-friendly destination could accelerate this trend.

Vulnerabilities Ahead

Despite its strengths, North Dakota’s model faces potential headwinds. A significant drop in oil prices could reduce severance tax revenue, potentially forcing the state to raise other taxes or cut spending. Additionally, as a non-renewable resource, oil production will eventually decline, requiring the state to diversify its revenue sources.

For now, however, North Dakota’s unique approach — using energy wealth to keep taxes low while maintaining robust government services — has positioned it as a surprising challenger to the traditional tax-friendly elite. As the Tax Foundation notes in its index, “the evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth.”

What to Watch

With ongoing tax reform efforts in states across the country, the competition for tax competitiveness is likely to intensify. North Dakota’s continued rise in the rankings will depend on its ability to maintain its oil-driven revenue model while planning for a future beyond fossil fuels. For residents and businesses seeking lower tax burdens, the Peace Garden State may soon become a destination worth watching.