A Guide to Taxes in Texas

Texas bulk revenue is levied from sales tax and is a state with no personal income tax.

States levy taxes to fund various services offered by their governments. But, tax policies vary from state to state. The Tax Foundation considers Texas tax-friendly overall as its state and local tax burden ranked 46 among all states.

In addition, Texas is among the eight states with no personal income tax. Most taxes in Texas are sales taxes, including taxes on specific industries and businesses. Here is a guide to taxes in Texas and their overall state.

Tax collection consists of approximately 40% total revenues of a state. Other taxes are from non-tax sources like intergovernmental aid, lottery revenues, and fees. The main taxes levied by most states include general sales tax, personal income tax, corporate income tax, and excise taxes. In Texas, a property tax is not collected by the state itself. Instead, the revenue is collected by school districts, counties, and cities and used specifically for local needs.

The Franchise tax

As of 2021, there is no individual income tax in Texas, but it levies a franchise tax on some retail and wholesalers businesses to 0.375%. For non-exempt companies, the rate increases to 0.75%. The franchise tax, referred to as privilege tax, is based on total business revenue exceeding $1.23M in 2022 and 2023. Certain general partnerships and sole proprietorships are exempt.

The Franchise tax annual due date is May 15 or the next business date if the date is a holiday or weekend. All past-due franchise debt interests accrue 61 days after the original due date. More so, after 30 days, penalties of up to 10% can be applied. But, you can learn more from freedom debt relief to understand how debt penalties work.

Property Taxes

Property taxes are income based on tangible personal property assessed based on the current market value. Texas property tax applies to all properties used to make income. These include machinery, furniture, inventory, supplies, and automobiles.

Vehicles are considered tangible personal property and therefore not taxed as long as they are not used to generate income. For real estate, the county districts perform the appraisal by comparing your property to other similar properties sold in the area.

Real estate value is multiplied by the local tax rate, which is based on the yearly budget and the revenue needed by the district. Those who own agricultural property can make special appraisals based on the value of their agricultural products.

Property Tax Exemptions

  1. Homestead exemption

You qualify for a $25,000 appraised value reduction if your house is your principal residential place. For school districts, they allow a separate exemption with 25% appraised value, but the local exemption can’t be below $5,000.

  1. Elderly and disabled exemptions

Homeowners aged 65 and above or those disabled may qualify for a $10,000 additional exemption for the school district taxes. They can also get an exemption on other local property taxes up to $3,000. In addition, a widow or widower aged 55 and above, whose deceased spouse had qualified for the 65 old exemptions can receive an exemption if they apply.

  1. Exemption for disabled veterans

U.S Armed Forces veterans who have been disabled can be eligible for the disabled veterans exemption. The exemption is 100% equal to the appraised value of their residence.

Sales Taxes

The sales tax level in Texas is 6.25%, but the rate goes up to 8.25% if localities add their sales taxes. There are also sales tax exemptions for prescription drugs, unprepared food, and over-the-counter drugs.

In addition, Texas has sales tax holidays each year with exemptions on certain education-related purchases. The holiday, which happens in April, May and August, exempts backpacks, clothing, and back-to-school supplies.

Other Texas State Taxes

Texas has had a gas tax set to 20 cents/gallon on unleaded fuels and diesel since 1991. This averages up to $10/month for a typical driver. Cigarettes are also taxed at $1.41/pack. If you use a hotel, bed & breakfast, other short-term residences, you get charged an additional 6% of the cost of the room.

Within this guide to taxes in Texas, it’s evident Texas is a tax-friendly state for retirees. Texas doesn’t tax pension pay-outs or income. Texas taxes also offer property tax exemption that can be of additional benefit to retirees.

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