How North Dakota could overtake Texas and Florida as the most tax-friendly state

When Americans think of low-tax policies, states like Florida and Texas usually come to mind. But another Republican-led state has quietly joined the club: North Dakota.

Tax cuts, strong finances and billions in oil revenue have combined to create one of the nation's most competitive tax environments in the Great Plains state while other states across the country grapple with budget shortfalls and debates over tax hikes.

The issue is likely to remain front and center for governors and state lawmakers as they look to attract residents, businesses and investment in the years ahead.

While most states do not sit atop one of the nation's largest oil formations, tax experts say the broader lesson is applicable almost anywhere. Strong revenues can be used to lower tax burdens and strengthen state finances rather than fuel spending increases.

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The payoff for North Dakota has been straightforward — residents keep more of what they earn, businesses face fewer tax burdens and the government remains on solid financial footing.

And while tax policy is only one piece of the equation, 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.

While North Dakota ranks second in tax collections per capita, it remains one of the country's more tax-friendly states — a welcome contradiction for the state's government and residents.

Unlike New York and California, blue states that heavily rely on income taxes to fund government operations, North Dakota generates billions of dollars from oil and gas production. That energy wealth has given lawmakers greater flexibility to cut taxes for its residents while maintaining healthy state revenues.

This dichotomy was highlighted by Treasury Secretary Scott Bessent, who during a meeting with the Petroleum Club of Houston last week compared California to deep red Texas and praised domestic energy production and dominance.

"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," he said in remarks first 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 said: "More than strengthen an economy, energy abundance also secures a nation. Economic security is national security."

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The numbers help explain how North Dakota has pulled off raking in revenue while keeping taxes low.

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. The difference is where the money comes from.

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North Dakota collects more tax revenue per resident than almost every other state, but much of that money comes from oil and gas production rather than from residents' paychecks.

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.

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%.

Put simply, North Dakota collects a lot of revenue without heavily taxing residents' incomes.

That revenue mix allows North Dakota to generate billions for government services while placing a relatively smaller burden on residents and businesses than states that rely more heavily on income taxes.

While few states can replicate North Dakota's oil wealth, advocates argue its success shows that revenue windfalls can be used to lower tax burdens and strengthen state finances rather than expand government spending.