New Hampshire No Income Tax Policy: History, Impact, and Revenue Alternatives

New Hampshire is one of nine states that levies no broad-based personal income tax, and one of only two — alongside Alaska — that also imposes no general sales tax. That combination is not an accident or an oversight. It is a deliberate structural choice embedded in the state's political identity, one that shapes how Concord funds schools, maintains roads, and delivers services to roughly 1.4 million residents. This page examines the legal foundation of that policy, how the state actually pays for things, the trade-offs that create real friction for residents, and where the boundaries of this framework begin and end.

Definition and scope

New Hampshire's prohibition on a general income tax is not merely statutory — it is constitutional. Part II, Article 5 of the New Hampshire Constitution restricts the legislature from imposing a tax on income from personal services, which courts have interpreted to bar a wage or salary tax. The New Hampshire Supreme Court affirmed this reading in Sirrell v. State of New Hampshire (2001), where a proposed broad-based income tax was challenged before it could even take effect.

What does exist — and this is where the picture gets more complicated — is the Interest and Dividends Tax, which for decades taxed income from interest and dividends at 5 percent. The New Hampshire General Court passed legislation in 2021 to phase that tax out entirely, reducing it incrementally until full repeal in January 2025 (New Hampshire Department of Revenue Administration). By 2025, New Hampshire will have no personal income tax of any kind, including investment income.

The policy's scope covers all individual residents of the state. It does not govern corporate-level taxation, which operates under a separate framework through the Business Profits Tax and the Business Enterprise Tax — addressed in detail at New Hampshire Business Taxes.

How it works

With neither a personal income tax nor a sales tax, New Hampshire's revenue architecture rests on four primary pillars:

1. Property tax — The largest single revenue source for municipal and county services, and one of the highest effective rates in the nation. The Tax Foundation has consistently ranked New Hampshire among the top 3 states for property tax burden relative to home value. The mechanics of this system are examined in depth at New Hampshire Property Tax System.
2. Business taxes — The Business Profits Tax (BPT) applies at a rate of 7.5 percent (as reduced by RSA 77-A following 2023 legislation) on taxable business income above $92,000 (NH Department of Revenue Administration, RSA 77-A). The Business Enterprise Tax (BET) applies at 0.55 percent on enterprise value tax base.
3. Rooms and meals tax — A 9 percent tax on prepared meals, room rentals, and motor vehicle rentals (NH DRA, RSA 78-A) functions as a partial substitute for a broad sales tax, capturing consumption revenue at the point most visible to tourists.
4. State-controlled revenue — The New Hampshire Liquor Commission operates state-owned liquor stores and generates significant transfer revenue to the general fund. The New Hampshire Lottery Commission similarly contributes proceeds designated for education funding.

The structural effect is a state government that is lean by design. New Hampshire's per-capita state and local tax burden has historically ranked among the lowest in the Northeast, though that figure obscures the property tax weight borne at the local level.

Common scenarios

Relocating workers from high-tax states — A software engineer moving from Massachusetts, where the personal income tax rate sits at 5 percent for most earners (Massachusetts Department of Revenue), to Manchester or Nashua eliminates state income tax liability on wages entirely. The Manchester-Nashua metro area has drawn substantial relocation activity from greater Boston precisely on this basis.

Retirees with pension income — Because no personal income tax applies to wages or pension distributions, retirees living on Social Security and defined-benefit pension income pay no state tax on those sources. Combined with the 2025 elimination of the Interest and Dividends Tax, investment income from retirement accounts also escapes state taxation.

Homeowners in high-value municipalities — The trade-off arrives in the property tax bill. A homeowner in a town like Hampton or Exeter may face an effective property tax rate between 1.5 and 2.2 percent of assessed value annually, depending on the municipality's education funding obligations — noticeably higher than comparable communities in states that balance revenue across income, sales, and property mechanisms.

Small business owners — Sole proprietors and pass-through entity owners pay no personal income tax on business profits drawn as personal income. However, if the business itself clears the $92,000 BPT threshold, the enterprise pays at the corporate level, which can complicate tax planning for S-corps and partnerships.

Decision boundaries

What this policy is not: The absence of a personal income tax does not mean New Hampshire is a low-tax state in all respects. The Tax Foundation's 2024 State Business Tax Climate Index ranks New Hampshire 6th overall, but the property tax component pulls in a different direction for homeowners. The characterization "no taxes" — popular in relocation marketing — is accurate only for wages and most investment income.

Federal obligations remain unchanged: New Hampshire residents file federal income tax returns under the same Internal Revenue Code obligations as residents of every other state. The state's policy has no bearing on federal tax liability.

The "border commuter" question: Thousands of New Hampshire residents commute to jobs in Massachusetts. Until 2021, Massachusetts attempted to tax those workers' income under emergency rules adopted during the COVID-19 pandemic, which New Hampshire challenged in a case filed directly with the U.S. Supreme Court (New Hampshire v. Massachusetts, 2021). The Court declined to hear the case, but Massachusetts subsequently ended the emergency policy as remote-work patterns normalized — leaving the pre-pandemic framework intact, under which Massachusetts taxes income earned within its borders.

Out-of-scope areas: This page does not address federal tax treatment, estate or inheritance taxes (New Hampshire repealed its estate tax in 2003), municipal-level fees or assessments, or the tax obligations of businesses operating in multiple states. For the full landscape of how New Hampshire structures its public finances and governmental institutions, New Hampshire Government Authority provides comprehensive reference coverage of state agencies, legislative bodies, and administrative frameworks — including the revenue agencies that administer the taxes described here.

The New Hampshire Department of Revenue Administration is the administrative body responsible for interpreting and enforcing the state's tax statutes. Questions about specific filing obligations, business tax calculations, or property tax appeals flow through that agency, not through any constitutional provision directly.

For broader context on how New Hampshire's tax structure intersects with its economic identity, the /index provides an entry point to the full reference framework covering the state's government, geography, and policy environment.

References

• New Hampshire Department of Revenue Administration — primary administrative authority for state tax law, including BPT, BET, rooms and meals, and the Interest and Dividends Tax phase-out
• New Hampshire Constitution, Part II, Article 5 — foundational legal text restricting income taxation
• New Hampshire General Court — RSA 77-A (Business Profits Tax) — governing statute for business-level income taxation
• New Hampshire General Court — RSA 78-A (Rooms and Meals Tax) — statutory authority for the 9 percent consumption tax
• Tax Foundation — State Business Tax Climate Index — annual comparative ranking of state tax structures
• Massachusetts Department of Revenue — Income Tax — basis for Massachusetts 5 percent income tax rate cited in comparison
• Sirrell v. State of New Hampshire, 2001 — New Hampshire Supreme Court ruling on income tax constitutionality