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Is this allowed by search engines and not penalized?
I am thinking about expanding with more domains for different states.
They have the exact same content inside; thousands of pages.
Uhmm... do you mean they have the same content regardless of state, or they have the same type of content , but tailored to each individual state?
If it is the same content regardless of the state - then please don't .... there are enough of these already out there.... waste of domain dollars IMHO :)
"Don't create multiple pages, subdomains, or domains with These quality guidelines cover the most common forms of deceptive or manipulative behavior"
"These quality guidelines cover the most common forms of deceptive or manipulative behavior..."
It just isn’t worth risking it in my opinion. Perhaps you could work on fresh relative content for each state to help set each site apart from another?
Its clear that "...These quality guidelines cover the most common forms of deceptive or manipulative behavior..." is a judgment call, but I would play it safe. The fact that your asking would indicate you aren’t feeling to secure about it.
Good luck!
-J Martin