Do You Have to Pay City Taxes in Texas

Taxes in Texas

Texas is well known for having no state income tax, but many residents still wonder whether cities or local governments can impose their own income or payroll taxes.
The answer is no. Texas cities cannot levy individual income taxes. However, local governments do collect other types of taxes such as sales tax, property tax, and franchise tax to fund city operations.
This article explains what Texas city taxes exist, how they work, and what residents should expect in 2025.

Step 1: No City or Local Income Taxes in Texas

Cities and counties in Texas are prohibited from imposing income taxes on individuals.
Residents pay only federal income taxes to the IRS. The state and its cities generate revenue primarily through indirect taxes and local assessments.

Example:
A resident in Austin earning $100,000 in 2025 will not pay any city or county income tax. Their paycheck will include only federal withholdings such as income tax, Social Security, and Medicare contributions.

Step 2: Types of Local Taxes in Texas

Although there are no city income taxes, several other taxes apply locally:

1. Sales and Use Tax
   • Texas cities may collect up to 2% local sales tax, in addition to the 6.25% state rate, for a combined maximum of 8.25%.
   • The tax applies to most goods and some services purchased within city limits.
   • Example: If you buy a laptop for $1,000 in Dallas, your total cost may include up to $82.50 in sales tax.
2. Property Tax
   • Cities, counties, and school districts assess annual property taxes based on your property’s appraised value.
   • Property tax bills are generally issued in October and due by January 31 of the following year.
3. Hotel Occupancy and Mixed Beverage Taxes
   • Cities may impose taxes on hotel stays or alcoholic beverage sales.
   • These taxes primarily affect businesses in tourism and hospitality industries.

Step 3: Checking Your Local Tax Rate

Local tax rates in Texas vary by city and county. To determine your total sales or property tax rate, review your local city or county tax notice or contact your appraisal district.
Each city sets its rate annually based on budget requirements, so rates may differ between neighboring areas such as Dallas, Houston, and San Antonio.

Example:
Two properties of the same value may have different total property tax bills if located in separate counties or school districts.

Step 4: Local Tax Obligations for Businesses

Businesses operating within Texas cities may have several local tax responsibilities:

• Sales Tax Collection: Businesses must collect sales tax on taxable transactions and remit it to the Texas Comptroller.
• Franchise Tax: Paid to the state but based on the company’s total Texas receipts.
• Property Tax on Business Assets: Businesses owning real estate or equipment must pay city and county property taxes annually.

All business tax filings can be completed through the Texas Comptroller’s Webfile System.

Step 5: Tax Planning for Texas Residents

Even though Texans do not pay city income taxes, local taxes still impact financial planning.
Here are steps to manage them efficiently:

1. Keep track of your property tax statements and verify assessed values each year.
2. Maintain receipts for large purchases in case of audits related to sales or use tax.
3. Deduct eligible property taxes on your federal return if you itemize deductions (subject to federal limitations).
4. Monitor changes in city tax ordinances that may affect your household or business.

Conclusion

Texas residents do not pay city or local income taxes, which makes the state a favorable environment for both individuals and businesses.
However, local governments rely heavily on sales, property, and business taxes to fund essential services.
Understanding how Texas city taxes operate ensures that you remain compliant while taking full advantage of the state’s no-income-tax benefits.

Call to Action

For personalized assistance understanding Texas city taxes, property assessments, or local business obligations, contact Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant, Enrolled Agent authorized to practice before the IRS, and cross-border tax expert assisting individuals and businesses in managing federal and Texas tax compliance.

Disclaimer

This article is for informational purposes only and should not be considered legal or tax advice. Always consult a licensed CPA before making tax or financial decisions.

Top 5 FAQs

1. Do Texas cities have income taxes?
   No. Texas law prohibits any city or county from imposing an income tax on individuals.
2. What local taxes do cities in Texas collect?
   Sales tax, property tax, and specific business taxes such as hotel or beverage taxes.
3. How much is the total sales tax in most Texas cities?
   The combined state and local rate is typically up to 8.25%.
4. Are property taxes the same across all Texas cities?
   No. Property tax rates vary by county, city, and school district.
5. Do Texas businesses pay local taxes?
   Yes. Businesses must collect sales tax, pay franchise tax to the state, and remit property tax on business assets.

About Our CPA

Anshul Goyal, CPA EA FCA is a Certified Public Accountant licensed in the United States, Enrolled Agent admitted to practice before the IRS, and cross-border tax expert helping Texas residents and businesses navigate federal filings, local compliance, and strategic tax planning.