With no corporate income tax and no individual income tax, Texas has one of the lowest tax burdens in the country, ranking as a Top 10 Best State in the Tax Foundation's 2015 State Business Tax Index.
In 2008, Texas replaced its franchise tax with a margins tax in order to establish a broader, fairer tax assessed at a lower rate. The goal of the reformed tax was to provide a level playing field for all businesses, to have a broad base that includes all business entities that receive liability protection from the state, to be competitive with other states to maintain Texas' reputation for having one of the best business climates in America, and to reflect the realities of a rapidly evolving economy. The reformed margins tax lowered the primary franchise tax rate to 1 percent on gross receipts for most taxable entities, and 00.5 percent for retailers and wholesalers (less compensation or cost of goods sold). Sole proprietorships, general partnerships, businesses with revenue under $1,000,000, and businesses whose total tax liability is $1,000 or less are exempt.
Under the reformed tax, businesses are rewarded for making good business choices. Every time a business puts a Texan to work, pays for health insurance, or invests in a pension plan, their tax liability decreases. The tax also penalizes bad business practices, such as hiring illegal immigrants.
These fair changes to the business tax code continue to stimulate our state's economy and encourage the entrepreneurial spirit that sets Texas apart.
Texas has no property tax at the state level. Local governments and special taxing districts levy taxes on real and tangible personal property. All property is appraised at full market value and these taxes are assessed on 100 percent of appraised value. The total tax rate is the sum of all taxing units including cities, counties, schools, and special districts.
Several property tax exemption incentives are available for qualified businesses.
For more information on property taxes in Texas, click here.
Texas levies a sales and use tax of 6.25 percent on all retail sales, leases, and rentals of most goods, as well as taxable services. Additionally, cities, counties and other taxing jurisdictions may add to the rate for a combined state and local rate of 8.25 percent.
Sales and use tax exemptions are offered on machinery and equipment used in the manufacturing process and on natural gas and electricity when sold to commercial businesses that are "predominantly" manufacturing.
The Comptroller of Public Accounts is charged with the administration and collection of state and local sales tax from businesses operating in Texas, and also collects any franchise taxes owed by Texas corporations. The Comptroller maintains field offices in most major Texas cities to provide assistance and aid in complying with tax regulations.
Additional information on taxation in Texas is available on the State Comptroller's website at www.window.state.tx.us/taxinfo/sales/.