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Texas State Taxes

Texas State Taxes

Texas is very tax friendly. They have no income or business tax, nor do they have estate or inheritance tax. The one place Texas could improve are their property taxes. They tend to be very high. They’re also one of the only states that also has a gross margins tax.

State Taxes at a Glance – Texas

Type of Tax2023
Individual RatesNone
Corporate / Business Tax RatesNone
Gross Receipts TaxYes
Sales Tax8.20% (average)
Property Taxes1.66% as a percentage of primary home
Estate or Inheritance TaxNone

State Income Taxes in Texas

Texas is one of the most tax friendly states in the union. It has no personal income tax.

Texas Franchise Tax

The state of Texas does not have business income tax; however, it does have a Gross Margins Tax called the Texas Franchise Tax. The Texas Franchise Tax is calculated one of four ways. In order to owe Franchise Tax, your business must have over $1,230,000 Million in total revenues (2022 and 2023 exemption amount). Here are the four different ways to calculate the gross margins for the Texas Franchise Tax:

  • 70% of Total Revenue
  • Total Revenue less Cost of Goods Sold (COGs)
  • Total Revenue less Compensation (payroll) – deduction is limited to $400K
  • Total Revenue less $1,000,000

The tax is based on calendar year and is usually due by May 15th of the following year. The Texas Franchise Tax is 0.75% for all businesses except wholesalers or retailers. If you’re a wholesaler or retailer, your Texas Franchise tax is half the normal rate (0.375%).

Here is a link to learn more about the Texas Gross Margins Franchise Tax.

Sales and Property Taxes in Texas

Sales Tax – Like many states, Texas has multiple tax rates. One at the state level and another at the local level. The state rate is 6.25% the average local rate is 1.95% (total average rate for Texas Sales Tax is 8.20%)

Property Taxes – The average property tax rate for residential property in the state of Texas is 1.66%, making it one of the more expensive places in the country to pay property tax. This is because the funding for Texas’ Independent School Districts all come from property taxes.

Texas Homestead Exemption

A homestead declaration is a state law that protects the equity of your home from creditors. Every state has different rules around homestead. You normally can only declare homestead on your primary residence. Some states, such as Texas and Idaho will also give you an additional tax break if you declare a homestead.

As we mentioned above, Texas has one of the highest property taxes in the county. A Texas homestead exemption allows you to reduce your tax appraisal by $25,000. Here’s an example: if your appraised tax value was originally $300,000, your texas homestead exemption would bring in down to $275,000. Additionally, if you’re 65 or older, or disabled, you will get an additional $10,000 exemption on top of the $25,000.

Texas Agricultural Exemption

In addition to the Texas Homestead Exemption, there is also the Texas Agricultural Exemption (or Texas Ag Exemption for short). The Texas Ag Exemption isn’t really an exemption, as it is more of a special valuation calculation on your land. This special valuation calculates your property taxes based on productive agricultural land value vs. market land value. This special valuation will save you a lot of money on property taxes, but in order to get it you must meet certain requirements

  • The land must be used primarily for agriculture
  • You must be engaged in a “Qualified Activity”. Some qualified activities are: farming, timber production, feedlot operations, bee keeping, horse breeding, etc.
  • The land must be used for agriculture for 5 out of the last 7 years
  • You must reapply for your Texas Ag Exemption every 5 years

If you lose your Texas Agricultural Exemption Status

It is very important to keep your Ag Exemption active. If you lose your Ag Exemption Status, you may be responsible for rolling back taxes (plus interest) for the past 3 to 5 tax years, so it is very important to reapply every 5 years.

Texas DMV fees

Texas has flat fees for vehicle registration. Since they are not based on the vehicles value, they are not deductible. To learn more, here’s a link to the Texas’ DMV website.

Texas Domicile

If you maintain a permanent place of abode for over 183 days, in aggregate, you are considered a Texas resident.

Texas Tax on Social Security Benefits

Even though there is a state income tax in Texas, they do not assess state income tax on social security benefits.

Payroll taxes in Texas

Unemployment taxes usually consist of three factors. They are the wage base, range of rates, number of schedules. Below is an outline of the three:

  • Wage Base – Texas has a wage base of $9,000
  • UI Rates – range from 0.31% to 6.31%
  • Schedules – Texas has one rate schedule regarding UI

Texas Business Entities – LLCs

As you’ve heard, Texas is a business-friendly state. It is one of only a few states that do not have an annual LLC fee. Here are some important facts:

  • No annual LLC fee – Yay!
  • When you register with the state, you pay a one time fee of $300
  • Secretary of State of Texas website – click here

Texas Tax Contact Phone Numbers

Important phone numbers for the Texas Department of Taxation: