Texas does not impose a personal income tax ― it is actually restricted by the state’s constitution. Instead, the state’s tax revenue comes primarily from its Franchise Tax, Sales/Use Tax, and Property Taxes.
Texas State Tax ― Corporate Tax
The Franchise Tax is a privilege tax that applies to all active taxable entities that are organized and/or doing business in Texas. Subject to this tax are: corporations, limited liability corporations (LLCs), partnerships, business trusts, professional associations, business associations, and joint ventures. Exempt from this tax are: sole proprietorships, passive entities, general partnerships (solely and directly owned by “natural people”), and certain other entities. Even if an entity is unrecognized by federal tax standards, it may be subject to the franchise tax in Texas.
The franchise tax rates are as follows:
- 1.0% for most entities
- 0.5% for qualifying wholesalers and retailers
- 0.575% for entities making $10 million or less in total annual revenue
Note that entities making $1 million or less in total annual revenue owe no tax, and entities that would owe less than $1,000 in tax do not have to pay that tax. However, even if no tax is owed, every taxable entity must file a report.
Texas State Tax ― Sales & Use Tax
Texas’s sales tax applies to the retail sales, rentals, and leases of goods and taxable services. It is applicable to sole proprietorships, partnerships, and corporations, which must regularly file tax reports and make tax deposits (monthly, quarterly or yearly, depending on qualifications). Payments are typically due on the 20th day of the month following the end of the reporting period.
There are 5 levels of the sales tax: State, City, County, Transit, and Special Purpose District. Texas has a 6.25% base state sales tax onto which the other local rates are added. These other tax rates range between the following percentages:
- City: 0.25% to 2%
- County: 0.5% to 1.5%
- Transit: 0.25% to 1%
- Special Purpose District: 0.125% to 2%
The Occasional Use Tax is paid by those who are not charged the correct amount of Texas sales tax when buying goods/services for use in the state. Often this applies to telephone and online purchases, as well as things bought from another state or another country. The bottom line is that you must pay the rate of the city/county where you live and/or intend to use the product.
Texas State Tax ― Property Tax
In Texas, property taxes are controlled by local governments ― there is no state property tax. While the State Comptroller’s Office may monitor and advise property taxation, the State does not receive any revenue or benefits from it.
The County Appraisal District (CAD) assesses the value of properties and local taxing units set the rates. The property taxpayer (either resident or business) is responsible for paying taxes to the local tax collector. The funds are then distributed to local governments to spend on schools, roads, hospitals, fire departments, and other programs. The property tax is the largest contributor of funds for local services in Texas.
There are over 3,700 local governments in Texas and each must follow the 5 basic rules for property taxes (as laid out by the Texas Constitution):
- Taxation must be equal and uniform.
- In general, all property must be taxed based on its current market value.
- Each property in a county must have a single appraised value.
- All property is taxable, unless exempted by federal or state law.
- Property owners have the right to reasonable notice of increases in their appraised property value.
An independent Appraisal Review Board (ARB) settles disagreements between the appraisal district and the property taxpayer. Appointed residents and citizens serve on this board to help resolve disputes about property value and taxability.
The general timeline for property taxes is as follows:
- January 1 ― Property Valuation: CADs begin to appraise properties
- May 1 ― Protest Period: The ARB begins protest hearings from property taxpayers
- August-September ― Tax Rate Adoption: local taxing units adopt their rates
- October 1 ― Tax Collection: local taxing units send bills to property owners
- January 31 (the following year) ― Taxes are due
A “rendition” is a form that describes the identity and location of a taxable personal property. Texas law requires renditions to be submitted by business owners (for whom the property is income-producing), but a rendition is optional for other property owners. The rendition form must be filed with the CAD every year between January 1st and April 15th.
Other Texas State Taxes
While Texas does not impose an inheritance tax, the Texas Comptroller’s office enforces nearly 60 other taxes, including the following:
Fireworks Tax ― This 2% state tax (in addition to sales tax) helps fund rural fire departments.
Employment Taxes ― A business with employees must collect or withhold an unemployment tax, which is submitted to the Texas Workforce Commission.
Cigarette Tax ― A tax of $1.41 is applied to the standard 20-pack of cigarettes. A tax of $1.76 is applied to a 25-pack of cigarettes.
Gasoline Tax ― A $0.20 tax is charged for every gallon of gasoline. The same applies for diesel fuel.
Hotel Occupancy Tax ― A tax of 6% of the cost of a room is added.
Texas State Tax Forms
Form 01-114 (Texas Sales and Use Tax Return)
Form 01-156 (Texas Occasional Use Tax Return)
Form 05-158 (Texas Franchise Tax Report)
Form 05-164 (Texas Franchise Tax Extension Request)
Texas State Tax Resources
Texas Comptroller of Public Accounts: www.window.state.tx.us/taxes
TX Comptroller tax forms: www.window.state.tx.us/forms
TX Comptroller “e-Services” center: www.window.state.tx.us/services
WebFile (online tax filing): www.window.state.tx.us/webfile
TEXNET (Electronic Payment Network): texnet.cpa.state.tx.us/TXN_StartPage
TX Comptroller “Electronic Reporting and Fund Transfers” webpage: www.window.state.tx.us/taxinfo/etf
Texas Tax Due Date Calendars: www.window.state.tx.us/taxinfo/calendar
2010 Appraisal District Directory (by Texas county): www.window.state.tx.us/taxinfo/proptax/apprdir10
Texas Tax Publications: www.window.state.tx.us/taxinfo/taxpubs
Contact the TX Comptroller of Public Accounts: www.window.state.tx.us/contact
TX State Tax Automated Research (STAR) System: cpastar2.cpa.state.tx.us
Texas’s Tax Freedom Day is April 6th.