Introduction
Texas is known for being one of the most tax-friendly states in the U.S. because it does not have a state income tax. However, Texas still imposes various other taxes on businesses, homeowners, and consumers to generate revenue.
This guide provides a complete breakdown of Texas taxes, including sales tax, property tax, franchise tax, and other state-imposed levies.
1. Does Texas Have a State Income Tax?
No, Texas does not have a personal or corporate state income tax. This means:
- Individuals do not pay state tax on wages, salaries, or retirement income.
- Businesses do not pay a corporate income tax.
Instead, Texas generates revenue through sales taxes, property taxes, and business taxes.
2. What Taxes Do Individuals Pay in Texas?
Sales Tax
- State Sales Tax Rate: 6.25%
- Local Sales Tax Rate: Can add up to 2%, making the maximum total 8.25%
- What’s Taxed? Most goods and services, including clothing, electronics, and dining.
Exemptions:
- Groceries, prescription drugs, and medical equipment are exempt.
- Texas Tax-Free Weekend allows tax-free shopping on eligible items annually.
Property Tax
- Texas has one of the highest property tax rates in the U.S., averaging 1.6%.
- Property taxes vary by county and city and fund schools, police, and public services.
Ways to Lower Property Tax:
- Apply for a homestead exemption (reduces taxable property value).
- Check eligibility for senior citizen, veteran, or disability exemptions.
Gasoline Tax
- $0.20 per gallon on gasoline and diesel fuel.
Vehicle Registration Fees
- $50 – $80 annually, depending on the type of vehicle.
3. What Taxes Do Businesses Pay in Texas?
Texas Franchise Tax
- A gross receipts tax applied to businesses earning over $2.47 million annually.
- The tax rate is 0.375% for retail/wholesale businesses and 0.75% for other businesses.
- Businesses earning less than $2.47 million are exempt under the Texas Franchise Tax No Tax Due Threshold.
Texas Sales and Use Tax
- Businesses must collect sales tax on taxable goods and services.
- Companies buying out-of-state goods for Texas use may owe use tax.
Employment Taxes
- Businesses must pay federal payroll taxes (Social Security, Medicare, and Unemployment).
- Texas does not have a state payroll tax.
4. Texas Tax Comparisons with Other States
| Tax Type | Texas | Florida | California |
|---|---|---|---|
| Income Tax | 0% | 0% | 1% – 13.3% |
| Corporate Tax | 0% | 5.5% | 8.84% |
| Sales Tax | 6.25% – 8.25% | 6% – 7.5% | 7.25% – 10.75% |
| Property Tax | 1.6% average | 0.89% | 0.76% |
Texas remains one of the most tax-friendly states despite its high property taxes.
5. How to Reduce Your Tax Burden in Texas
- Use Homestead Exemptions – Homeowners can lower taxable property value.
- Buy Goods During Tax-Free Weekend – Certain items are exempt for limited periods.
- Claim Business Tax Deductions – Deduct eligible business expenses from taxable income.
- Reduce Gasoline Costs – Texas has no state vehicle tax, but fuel taxes apply.
6. What Happens If You Don’t Pay Texas Taxes?
| Missed Tax Payment | Penalty |
|---|---|
| Sales Tax Late Payment | 5% – 10% penalty + interest |
| Franchise Tax Late Filing | Up to $50 penalty |
Property Tax Late Payment Up to 12% penalty + interest
Late payments may result in fines, interest, and legal action by the state.
Conclusion
Texas has no state income tax, but residents still pay sales tax, property tax, and business-related taxes. Understanding these taxes can help individuals and businesses maximize tax savings.
For expert tax planning, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.
Frequently Asked Questions (FAQs)
1. Does Texas have a state income tax?
No, Texas does not impose a state income tax on individuals or businesses.
2. Why are property taxes high in Texas?
Since Texas does not have an income tax, property taxes fund schools, emergency services, and infrastructure.
3. Do Texas businesses pay corporate income tax?
No, but businesses may owe Texas Franchise Tax if revenue exceeds $2.47 million.
4. What is the sales tax rate in Texas?
The state rate is 6.25%, but local jurisdictions may add up to 2%, making the maximum 8.25%.
5. How can I lower my property tax bill in Texas?
Homeowners can apply for a homestead exemption, senior citizen exemption, or veteran exemption to reduce taxable value.