Taxes in Texas -- A State Tax Profile

A Guide to Taxes in Texas

Map of Texas with Austin skyline in background
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Some taxes in Texas are very straightforward: This is one of only seven states that have no individual income tax as of 2016. Most of Texas' tax revenues come from sales taxes and taxes on businesses and specific industries. Texas does have a property tax, but it's collected by cities, counties and school districts and can only be used for local needs. 

Income Taxes in Texas

Texas has no individual income tax, but it does levy a franchise tax, which is a type of income tax based on total revenues, on some businesses.

Inheritance and Estate Taxes in Texas

The state repealed its inheritance tax on Sept.1, 2015. There is no estate tax in Texas, although some estates may be taxed at the federal level. 

Property Taxes in Texas

Property taxes are based on the current market value of real estate and tangible personal property as appraised by the county appraisal district. The appraiser compares your home to others that have recently sold to determine its value. 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 is needed to cover 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 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, which in turn can reduce your property tax bill. 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 residence as of Jan. 1 of the tax year, 
  • Exemptions for seniors and the disabled: Homeowners who are age 65 or older or 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 may be eligible for a disabled veteran's exemption. This exemption is equal to 100 percent of the appraised value of the primary residence. 

 

Other State Taxes in Texas

The state sales tax is 6.25 percent. Localities can add their own sales taxes to this, which brings the rate up to 8.25 percent in some areas. Unprepared food, prescription drugs and over-the-counter drugs are exempt. The state's gas tax is 20 cents a gallon on diesel and unleaded fuels, which comes out to 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.