Taxes in Texas—A State Tax Profile

Texas is pretty tax-friendly compared to other states

Map of Texas with Austin skyline in background
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Some taxes in Texas are very straightforward. It's one of only seven states that has no personal income tax as of 2018. Most of Texas' tax revenues come from sales taxes and taxes on businesses and specific industries. The state does have a property tax, but it's collected by cities, counties, and school districts and it can only be used for local needs. 

Income Taxes in Texas

Although Texas has no individual income tax, it does levy a franchise tax of .375 percent on some wholesale and retail businesses as of 2018. Sole proprietorships and some general partnerships are exempt. Also called a "privilege tax," this is a type of income tax based on total business revenues. The rate increases to .75 percent for other non-exempt businesses.

Inheritance and Estate Taxes in Texas

Texas repealed its inheritance tax on Sept. 1, 2015. There's no estate tax in Texas, either, although estates valued at more than $11.18 million can be taxed at the federal level as of 2018. 

Property Taxes in Texas

Property taxes are based on the appraised current market value of real estate and income-producing tangible personal property. Appraisals are performed by county districts. "Income-producing" is the key phrase here. Your vehicle might be considered tangible personal property, but it's not subject to a property tax as long as you don't use it to earn a living.

As for real estate, the appraiser will compare your home to other similar homes that have recently sold and determine its value from there. The appraised value of your property is then multiplied by the local property tax rate to determine your property tax bill. These rates are set by counties and school districts and are based on yearly budgets and how much revenue the districts need to cover their costs.

Local governments hold public hearings to discuss tax increases, and citizens can petition for a public vote on an increase if it exceeds certain limits. Owners of agricultural or timberland property can apply for special appraisals based on the value of crops, livestock, and timber produced by the land. This can result in lower appraisals and lower property taxes. 

Texas Property Tax Exemptions

Property tax exemptions reduce the appraised value of your property, and this can in turn reduce your property tax bill. For example, a tax rate of 1.8 percent applied to a value of $200,000 works out to more than 1.8 percent on $175,000. The following exemptions are available in Texas and all can be applied for using the same application form.

  • The homestead exemption: You can qualify for a $15,000 reduction in your home's appraised value if your property is your principal place of residence as of Jan. 1 of the tax year.
  • Exemptions for seniors and the disabled: Homeowners who are age 65 or older or those who are disabled can qualify for an additional $10,000 exemption for school district taxes and a $3,000 exemption for other local property taxes. The school district cannot tax any more than what a homeowner paid in the first year he qualified. The tax is effectively frozen. Widows or widowers age 55 or older whose deceased spouse qualified for the 65 or older exemption can continue to receive the exemption if they apply.
  • Exemption for disabled veterans: Veterans of the U.S. armed forces who have been disabled as a result of their service might be eligible for a very generous disabled veteran's exemption. This exemption is equal to 100 percent of the appraised value of the primary residence.  

Other State Taxes in Texas

Texas' state level sales tax is 6.25 percent. Localities can add their own sales taxes to this, which can bring the rate up to as much as 8.25 percent in some areas. Unprepared food, prescription drugs, and over-the-counter drugs are exempt.

The state offers sales tax "holidays" each year. Certain purchases are exempt from sales tax on these occasions if you spend over a certain dollar amount on them. The holidays usually take place in April, May, and August, and August's dates often conveniently exempt clothing, backpacks, and back-to-school supplies.

The state's gas tax has been set at 20 cents a gallon on diesel and unleaded fuels since 1991. This works out to just less than $10 a month for the average driver. Texas taxes cigarettes at $1.41 a pack, and a stay in a hotel will cost you 6 percent of the cost of the room. If you're thinking of purchasing fireworks to celebrate the Fourth of July, tack on 2 percent.

All told, Texas ranks 46th among all states with regard to its overall state and local tax burden, according to the Tax Foundation. It comes in at just 7.6 percent.