Introduction
Texas is known for its low-tax environment, but residents and businesses still pay sales tax and property tax, which significantly impact their finances. While Texas has no state income tax, property and sales taxes can be higher than in other states.
This guide compares Texas sales tax vs. property tax, helping individuals and business owners understand which tax affects them more and how to minimize tax liability.
Overview of Texas Sales Tax vs. Property Tax
| Tax Type | Who Pays? | Rate |
|---|---|---|
| Sales Tax | Consumers | 6.25% – 8.25% |
| Property Tax | Homeowners & businesses | 1.6% – 2.2% |
- Sales tax applies to purchases, while property tax is based on real estate value.
- Businesses and individuals pay both taxes in different ways.
Texas Sales Tax Explained
- State sales tax rate: 6.25%
- Local sales tax: Up to 2% additional tax
- Total max sales tax: 8.25%
What Is Taxed in Texas?
- Clothing, furniture, electronics
- Restaurants and prepared food
- Business equipment and supplies
What Is NOT Taxed?
- Unprepared groceries (fruits, vegetables, meat, milk)
- Prescription medications & medical devices
- Some manufacturing equipment
Who Pays More in Sales Tax?
- High-spending consumers (shopping, dining, entertainment).
- Businesses that purchase taxable goods.
- Tourists and visitors.
Texas Property Tax Explained
- Average property tax rate: 1.6% – 2.2%
- No state property tax – Property taxes are collected by local governments.
How Property Tax Is Calculated
Property Tax = Assessed Property Value × Local Tax Rate
Who Pays More in Property Tax?
- Homeowners and real estate investors.
- Businesses with commercial properties.
- Landowners with undeveloped land.
Sales Tax vs. Property Tax: Which One Costs More?
| Taxpayer Type | Sales Tax Impact | Property Tax Impact | Which One Affects More? |
|---|---|---|---|
| Renters | High | None | Sales Tax |
| Homeowners | Moderate | High | Property Tax |
| Businesses | High | High | Both |
| Tourists | High | None | Sales Tax |
- Renters pay more in sales tax since they do not own property.
- Homeowners face higher costs from property tax but may have fewer taxable purchases.
- Businesses pay both sales and property taxes, increasing costs.
How to Reduce Texas Sales Tax
- Shop for Tax-Exempt Items
- Buy groceries instead of prepared food.
- Use medical tax exemptions for prescriptions.
- Take Advantage of Texas Tax-Free Holidays
- Back-to-School Tax-Free Weekend (August)
- Energy-Efficient Appliance Tax Holiday (May)
- Business Exemptions
- Manufacturers can apply for sales tax exemptions on equipment.
How to Reduce Texas Property Tax
- Apply for Homestead Exemptions
- Reduces taxable home value by up to $100,000.
- Protest Your Property Value
- File a property tax appeal with the appraisal district.
- Check for Senior & Disabled Exemptions
- Over-65 and disabled homeowners can freeze school taxes.
Should You Work with a CPA for Tax Planning?
A CPA can help:
- Identify tax-saving opportunities for property owners and businesses.
- File property tax protests to reduce home assessments.
- Maximize business sales tax exemptions.
Conclusion
Both sales tax and property tax impact Texans, but their effect depends on whether you are a renter, homeowner, or business owner. Homeowners are hit hardest by property taxes, while consumers and businesses face higher sales tax burdens.
For expert tax-saving strategies, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.