Texas Tax Rates

This post provides an overview of the primary taxes levied at the state level in Texas. The state is famous for having no personal or corporate income tax, relying instead on a gross receipts-style franchise tax on businesses and very high local property and sales taxes. For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

Texas is one of a few states that does not impose an individual income tax on wages, salaries, or investment earnings.

  • State Rate: The state income tax rate on all types of personal income is a flat 0.0%.
  • Constitutional Ban: The Texas State Constitution expressly forbids levying an income tax on individuals, a provision enshrined into law by voters in 2019.
  • Retirement Income: Income from pensions, 401(k)s, IRAs, and Social Security benefits are not taxable at the state level.
  • Local Income Tax: Texas does not impose a local or county income tax.

Sales and Use Tax

Sales tax is a significant source of revenue, combining a state base rate with substantial local additions.

  • State Rate: The general state sales and use tax rate is 6.25% on the retail sale of most goods, leases, rentals, and certain taxable services.
  • Local Taxes: Local jurisdictions (cities, counties, special purpose districts, and transit authorities) can impose an additional sales and use tax of up to 2.00%.
  • Combined Rate: The total maximum combined sales tax rate is 8.25%, which is the rate in most major metropolitan areas (e.g., Dallas, Houston, San Antonio). The statewide average combined rate is approximately 8.20%.
  • Exemptions: Key exemptions include groceries (unprepared food for home consumption), prescription drugs, and over-the-counter medicine.
  • Use Tax: A state use tax of 6.25% plus the applicable local rate applies to taxable items purchased outside of Texas but used, stored, or consumed in the state if state sales tax was not collected.

Property Tax (Ad Valorem Tax)

Property taxes in Texas are collected exclusively at the local level by thousands of local entities (school districts, cities, counties, and special districts). This tax burden is one of the highest in the U.S., reflecting the state’s reliance on it to fund services since there’s no income tax.

  • Assessment: Property is appraised annually by County Appraisal Districts (CADs) at its full market value as of January 1st.
  • Effective Rate: The average effective property tax rate on owner-occupied housing is approximately 1.63% of the home’s value, which is significantly higher than the national average.
  • Homestead Exemption: The most common exemption is the Homestead Exemption, which is mandatory for school district taxes and exempts a portion of a property’s value from taxation.
  • Tax Calculation: The tax is calculated by applying the local tax rate (set by each taxing entity) to the property’s assessed value minus any applicable exemptions. School districts typically account for the largest portion of the tax bill.

Corporate and Business Taxes

Texas does not impose a corporate income tax. Instead, it levies a Franchise Tax (often called the Margin Tax), which is a gross receipts-style tax imposed on most business entities (including corporations, LLCs, and LPs) for the privilege of doing business in the state.

  • Tax Base (Margin): The tax is levied on a business’s taxable margin, which is determined by calculating the lowest of four methods:
    • Total Revenue minus Cost of Goods Sold (COGS)
    • Total Revenue minus Compensation
    • 70% of Total Revenue
    • Total Revenue minus $1 Million (for entities choosing the E-Z Computation)
  • No Tax Due Threshold (2024 & 2025): Businesses with total revenue below $2,470,000 owe no Franchise Tax.
  • Tax Rates (2024 & 2025):
    • 0.375% of taxable margin for retailers and wholesalers.
    • 0.75% of taxable margin for all other businesses.

Unique and Miscellaneous Taxes

  • No Estate or Inheritance Tax: Texas does not impose a state-level estate tax or inheritance tax.
  • Motor Fuel Tax: A per-gallon tax is levied on motor fuels, set at 20 cents per gallon for gasoline.
  • Cigarette Tax: The state imposes a specific excise tax on cigarettes, currently set at $1.41 per pack of 20 cigarettes.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.